Invest In Your Family’s Future

There has been a lot made in recent years about how younger generations are going to afford to retire.


David Willets, former MP and author of ‘The Pinch’ expresses concern that it will become increasingly difficult for younger generations to retire comfortably and that widespread ‘pensioner poverty’ is a looming crisis. To be honest, we are inclined to agree with him.

There is a perfect storm of factors contributing to this, including:

  • Increasing life expectancy
  • State pension age increases
  • End of the generous ‘final salary pension’ era

So what can we do about it?

Ultimately, a cultural shift from spending to saving is needed and politicians will have to play their part in this. Recent pension legislation that makes it a legal requirement for employers to automatically enrol eligible staff into a workplace pension and make contributions is a step in the right direction.

For those in a fortunate enough position to assist their family and make gifts to their children, grandchildren, nephews or nieces should consider doing so via pension and here’s why:

  • Making pension contributions would be a great way to kick-start their retirement savings.
  • Contributions to pension benefit from tax relief on the way in. Even individuals without an earned income (i.e. children) are eligible for tax relievable contributions of up to £3,600 per annum. Therefore a contribution of £2,880 will be topped up by £720 in tax relief from the Government.
  • The earlier the money gets put away, the longer it has to grow! To give an example, making gross contributions at £3,600 for 10 years (a total net cost of £28,800) could grow to be worth c. £500,000 after 50 years assuming a net annual growth of 6%.
  • Pension funds are invested in a tax-free environment, so no tax to pay on investment gains or income while it grows.
  • Personal pensions are accessible from age 55. (Expected to change to 10 years prior to state pension age from 2028)
  • 25% of the pension value will be made available tax-free with the remainder subject to income tax.
  • Income and tax-free cash can be accessed flexibly as and when it is needed in retirement.
  • Contributions paid regularly and habitually out of excess income can be considered out of the scope of inheritance tax immediately. There is also an annual allowance of £3,000 per person per year that could be utilised for capital gifts.

If you would like any further information or if you would like to consider gifting into a pension for a family member please get in touch!


Note: Information is based on current legislation which is subject to change.



Posted by:
Dan Clark

November 3rd, 2017

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