Retirement Planning
The pensions landscape has changed in recent years, giving you more control and flexibility. Southover Wealth are available to deliver face-to-face financial advice that is tailored to you.
Live Life Your Way
Put simply, the amount of money that we have determines our lifestyle. How much time we need to spend working. And how much we can spend doing the things we enjoy. Personal wealth also determines when we can afford to change our lifestyle and how we spend our retirement years. One of the best ways that we can save for retirement and aim to achieve our lifestyle goals is with a pension.
PENSION SCHEMES - THE TAX GIVEAWAY
Pension schemes have always been tax-efficient, but historic restrictions prevented them from being a vital part of a successful investment strategy. In fact, membership of an employer scheme prevented any meaningful personal investment.
These older pension schemes were originally designed to take much of the decision making away from individuals, and provide a cash lump sum and an income from the age of 60 or 65. But many of us, understandably, want to access our funds at an earlier age and have more control over how and when we start taking income.
Thankfully, the pensions landscape has changed in recent years. Current rules mean more control and flexibility.
MAXIMISE YOUR BONUS
You’re not limited to making monthly contributions to your pension. You can also get tax relief on lump sum contributions. For example, you may have a substantial performance-related bonus as part of your remuneration package with work.
The tax relief you’ll earn on the contribution will compensate for the tax due on the money and means you’ll see the full value of your bonus paid into your pension. Income tax will reduce your bonus significantly if it’s paid directly to you. However, you can ask your employer to pay it into your workplace pension instead.
This can give your pension a major boost and, depending on how the payment is set up, may also offer National Insurance savings for you and your employer. Alternatively, you can take the bonus and pay it into a personal pension. You can then reclaim the tax you paid on it through tax relief on pension contributions.
/ CONFIDENCE
/ KNOWLEDGE
/ SECURITY
Know Your Limits
The pension tax rules can be summarised as follows:
Tax relief
Eligible personal contributions are relievable against your Income Tax.
They are payable net of basic rate tax with any higher rate relief being claimed via the self-assessment process.
Employer contributions are a deductible business expense.
Employer contributions may be tax-free for the employee, provided they do not exceed the annual allowance.
Pension funds are free of all UK Income Tax and Capital Gains Tax.
Generous tax-free cash sums of up to 25% of your pension fund are available up to a maximum of £268,275 (unless you have a form of protected tax-free cash in place), and even more generous tax-free benefits may be available to dependants upon your death, should death occur on or before age 75.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
Maximum contributions
The Pensions annual allowance is the maximum amount that can be paid into a pension each tax year. This Includes contributions from yourself, your employer, any third party as well as tax relief paid to the pension. The current annual allowance is £60,000 in the 2025/26 tax year. However, you’ll only personally get tax relief on contributions up to 100% of your earnings if your earnings are less than the £60,000 annual allowance, or £3,600 – whichever is lower – in each tax year.
There may be a reduction in your annual allowance if you have previously drawn income flexibly from a pension arrangement or you have an adjusted income above £260,000. In these circumstances the annual allowance could be reduced to as much as £10,000 depending on your circumstances. If you think this might apply to you then advice should be sought.
It may, in certain circumstances, be possible to ‘carry forward’ unused allowances from the previous three tax years and as a result benefit from an increased annual allowance. This is however potentially complex, and advice should be sought.
Pension benefits
These comprise a 25% tax-free cash sum up to a maximum of £268,275 (unless you have a form of protected tax-free cash in place) plus an income. The type of income chosen determines how long it will be paid for. Benefits can generally start to be taken from age 55 (this will rise to 57 in 2028). There is no link between working status and timing of benefits. After age 55, you may take benefits when needed, in full or in part.
It is possible to take the cash sum without the need for any income. The income may be provided by way of annuity purchase or withdrawals from the fund or a combination of both. The introduction of benefits may be phased.
The cash sum will usually be tax-free and the pension will be subject to income tax.
Death benefits
In the event of your death, your remaining money purchase fund can be used to provide one or more of your beneficiaries with a lump sum death benefit or a beneficiary’s pension.
If you die before age 75, a lump sum death benefit that is paid within two years of the scheme being notified of your death, will be tax-free up to your available ‘lump sum and death benefit allowance’.
If a lump sum death benefit is paid more than two years after the scheme is notified of your death, or if you die after age 75, all of the lump sum death benefit will be subject to income tax, or a 45% tax charge if paid to a discretionary trust.
If you die before age 75 and a beneficiary’s pension is set up within two years of the scheme being notified of your death, income paid from the beneficiary’s pension will be tax-free for the remainder of your beneficiary’s lifetime. If a beneficiary’s pension is set up more than two years after the scheme being notified of your death, or if you die after age 75, income paid from the beneficiary’s pension will be subject to income tax.
Currently pension funds paid out on death are not usually subject to Inheritance Tax. In the Autumn Budget 2024 there was a proposal announced that, from 6 April 2027, most unused pension funds and death benefits will be included within the value of a person’s estate for Inheritance Tax purposes.
Investments
Subject to the rules of the scheme, there are no real restrictions on investments. However, there may be severe tax charges for investment in residential property or ‘tangible moveable assets’, whether it is direct or indirect.
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA. The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.
Trusts are not regulated by the Financial Conduct Authority
Cash ISAs are not available through St. James's Place.
For advice tailored to your individual circumstances please get in touch.
