|
Pensions are a very
tax efficient way of saving money for retirement as premiums are allowable
as a deduction against profits for tax purposes. On retirement, up to
25% of the fund can then be taken tax free. There are basically
three different types of pensions: Personal pensions These can be taken
out by either self-employed persons or employees (provided they are
not in a company scheme). Employers may also contribute to an employees
scheme but as with self-employed premiums, the total contributions are
limited to a percentage of ‘net relevant earnings’ ranging from 17.5%
for those under 36 to 40% for those over 60. Income tax relief
is due at the tax payers highest applicable rate i.e. a contribution
of £1,000 will cost a higher rate tax payer a net £600 after receiving
£400 tax relief. There is a maximum earning figure of £97,200 for the
year 2002/2003 when calculating contributions. Company pension schemes These are funded
by contributions from the employer and may also include contributions
from the employee. The maximum amount which can be paid into a scheme
is again based on the employees salary. The major difference
between company and personal pension schemes is that with a company
scheme, the employee must retire from the business before taking the
pension. Stakeholder pensions These are schemes
with lower charges and have been available to both self-employed and
employees from April 2001. The minimum contribution will be £20 per
month and up to £3,600 per annum may be contributed without reference
to ‘net relevant earnings’. In certain circumstances, employers will
be obliged to deduct an employees contribution from their salary and
then remit the contribution to a scheme provider. The employer is under
no obligation to make a contribution to this scheme. This scheme must
be offered by employers with 5 or more employees (including directors)
unless all employees earn less than £67 per week or there is already
an exempt pension scheme in place for all employees. If your employees
do not have access to a scheme by 1 October 2001 the employer can be
fined up to £50,000 by the Occupational Pension Regulatory Authority.
Payne Sherlock is regulated by the Institute of Chartered
Accountants in England and Wales to provide investment advice. As such
we are not tied to any one particular financial provider and can therefore
research the market to find the most suitable product for each individual
case. As well as pensions, we can also advise on Key Man life policies,
PEP ‘s, investment bonds etc. |
