Retirement Planning: Overview

The taxation of pensions has been drastically changed in 2006, opening up both opportunities and potential pitfalls. HM Revenue and Customs described the process of change as ‘simplification’. In many respects, this description is correct. For most people, the tax rules will simplify the situation very considerably. The multiplicity of different tax regimes were abolished with effect from 6 April 2006 and very few people will find the new allowances for contributions or retirement benefits in the least restricting.

Pensions will still be the most tax-efficient way for most people to provide for their retirement. The large minority of the working population that are still members of defined benefits (or salary-related) pension schemes will have a generally attractive and secure means of building pension benefits. The remainder who depend on defined contribution (or money purchase) schemes will find that the tax advantages normally outweigh the restrictions on access and the other rules. If you are a business owner, you could find that your pension scheme is a useful tax vehicle for achieving your financial objectives.

The changes could mean that this is a good moment to review your pension arrangements.