Pensions Simplification

‘A’ Day (Appointed day) arrived on 6th April 2006 and brought with it sweeping and radical changes for contractors looking to invest in a pension – either via a one-man limited company or personally.

After this date the complex web of eight pension regimes was updated to just one set of tax rules for all types of pension, with an individual Lifetime Allowance (£1.8 million 2011/2012).

Unlike the previous restrictive rules that limited pension investment to a set percentage of salary, contractors will personally be able to place up to 100% of their salary into a pension. In addition the rules regarding funding a pension scheme direct from your limited company appear to allow a massive investment of up to £50k pa irrespective of salary.

• Up to 25% Tax Free Cash is available on many schemes once you reach age 55
• New and more flexible options at retirement including the freedom to defer purchasing an annuity- indefinitely if required
• No need to 'secure' benefits with a rigid annuity by age 75 as at present
• Earliest retirement age rising from age 50 to age 55 from 2010
• The ability to pass pension funds onto future generations
• Greatly increased scope to provide for life insurance with tax relief on premiums

It is important to understand that even now some of the details regarding the application of these new rules are not yet fully finalised and there may well be further changes to the mechanics of how contributions are allowed for instance. It does seems fair to state, however, that pension investment will allow far more freedom in future, with greater possibilities for tax savings, enabling contractors to build a better nest egg towards a prosperous retirement.

If you would like to discuss your pension options further please complete the our Pension Finder.