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.

Family_Savings

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

Published:
November 3rd, 2017

Posted in:


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