1. MoneyMatters March/April 2012
Life
Assurance
PROTECTED
RIGHTS PENSION
How the changes affect you
Tax Relief
INVESTING
ISA
IN A RECESSION
Beat the
INVESTING TAX CLOCK
G Lifestyle Protection G Creating Wealth G Tax Rules G
Copperfields Financial Management Ltd
Basepoint Business Centre, Oakfield Close, Tewkesbury, Gloucestershire GL20 8SD. T: 01684 851224
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Copperfields Financial Management Limited is an appointed representative of Financial Ltd which is authorised and regulated by the Financial Services Authority.

2. inside
Pension Tax Relief
No automatic tax relief Page 2
ISA Investing
A tax efficient wrapper
Page 7
Q&A
Be in control of your pension Page 10
Beat the tax clock
Beat the tax clock SIPPs
ISA loophole
Make the most of concessions Page 3
For people aged between 16 and 18
Ways of saving for retirement Page 10 Everyone faces a race against the clock to make the most out of limited tax
Page 7 concessions before they vanish at the end of the current tax year on April 5.
End of Tax Year planning Investing in a recessions
Taking advantage of tax breaks Page 4 Annuity Nerves of steel required Page 11 Asset switching Use your CGT exemption as they like worth up to £250 to different
Before you plan your retirement... Husbands and wives should consider Capital gains tax is charged when you sell individuals.
Page 8 switching assets between each other. Aim to assets, including shares and property, for a None of these will affect the £325,000
Income tax and income tax Company Succession Planning put income in the name of the person with the profit. It is levied at 18 per cent for basic rate nil-rate band. You can still give away bigger
allowances Page 5 Ensure your business survives Page 12 lowest income tax rate or who has some taxpayers, rising to 28 per cent if you pay sums, however if you die within seven years of
Protected Rights
unused personal allowance. income tax at 40 or 50 per cent. making these gifts they will be treated as part
Government to abolish contracting
Maximise your cash ISAs The annual allowance provides the first of your estate and may be subject to IHT.
Life assurance out of State Pension Reader reply section £10,600 of any profits tax free. The CGT
Cash ISAs are where to start for tax-free Protect savings
Which products to choose Page 6 Page 9 Personalised reply section Page 12 exemption is one area of tax planning people
saving. They are deposit accounts where all The Government is reducing the pension
interest is paid free from tax. Savers can forget or fail to use fully. People, who may lifetime allowance on April 6 from £1.8million
Need more information? Simply complete and return the information request on page 12 contribute a maximum of £5,340 this tax year, hold or have inherited substantial assets, to £1.5million.
rising to £5,640 from April 6 2012. should think about selling a portion every tax Final salary pensions are valued at the rate
year to bank profits and use up the CGT of 20 times annual income. Meaning someone
Claim your tax back
allowance. who is already entitled to a pension of
The Government pays tax credits to help
Pension Tax Relief
working couples and families, depending on Pension boosting £75,000 a year or more could have an issue.
your income each tax year. You should inform Contributions into a pension qualify for tax Pensions are tested at retirement. Those
HM Revenue & Customs promptly if that relief. This boosts the value of every £1 of over this limit will be taxed at 55 per cent, but
income changes. taxed income that you pay in by 25p for basic anyone who thinks they might break through
The value of the credits can rise if your rate taxpayers. the new allowance can protect their fund if
income has gone down for whatever reason Higher rate taxpayers can claim back even they register with the Revenue before the end
and there is no need to wait for the end of the more. There is a £50,000 annual limit for of the current tax year.
tax year or to be sent a renewal form. This is pension contributions, though you need to
A higher rate tax payer does not receive tax relief relief could be up to a maximum of 20 per cent, on top of the one of the rare occasions where it is worth have earned at least this sum during the year.
getting in touch with HMRC quickly. Some bigger earners, or those who have been The value of your investment and
automatically on their personal pension contributions, they basic rate of 20 per cent. made redundant, may be able to invest more,
Also note, rises of income of less than the income from it can go down as
have to claim it. This means that someone earning more than Additional rate tax payers £10,000 will not affect your credits in the and you can carry forward any unused well as up and you may not get
£42,475 in the current financial year could potentially be As from 6 April 2011, if you are an additional rate tax payer, current tax year. But prompt notification allowances from the three previous tax years back the original amount invested.
losing a fifth of the value of their pension if they are not paying 50 per cent, you may also be able to claim additional makes any overpayment of credits next tax in some circumstances. Past performance is not a guide to
actively claiming back higher rate tax relief on their tax relief at your highest rate. As with 40 per cent tax payers, year less likely. Children future performance.
contributions. this depends on how much you earn over the higher rate tax Equity ISAs This is the first tax season when the whole
For those not adverse to risk, stocks and family can top up an ISA. The Junior ISA,
Claiming higher rate tax relief on personal pension band and your level of contribution, any additional rate tax
shares ISAs are a good area of investment. launched in November, allows family or friends
contributions is considered to be the single most important relief could be up to a maximum of 30 per cent, on top of the to save up to £3,600 each tax year into a
These can be used to shelter funds investing in
relief you can claim, yet hundreds of thousands could be basic rate of 20 per cent. shares, bonds and property. There is no further tax-free account on behalf of children.
missing out. To obtain your additional tax relief you must file a The advantage of full tax relief straight income tax to pay on any dividends or However, if you or your child was eligible for
tax return or get HM Revenue & Customs to change your tax If you are employed, your employer will take occupational payments from funds held in an ISA. Any a Child Trust fund then you cannot invest in a
profits when the investments are eventually Junior ISA.
code. To do this, you have to contact your local tax office. pension contributions from your pay
sold are free from capital gains tax. The Like the adult ISA, the ‘JISA’ can be
Claiming your tax back before deducting tax (excluding held in cash or invested in stocks and
If you pay income tax on your earnings before any personal National Insurance To disc maximum that can be saved into a stocks and
uss ho shares ISA is £10,680 this tax year, rising to shares. The account is open to anyone
pension contributions, your pension provider claims tax back contributions). You only to get w aged 17 or under who does not already
out of the mo £11,280 from April 6 2012.
from the government at the basic rate of 20 per cent. In pay tax on the balance, so your p st Redundancy
have a Child Trust Fund (CTF). Cash
planni ens cannot be withdrawn until the child
practice, this means that for every £80 you pay into your whether you pay tax at ng, ple ion The first £30,000 of any redundancy
turns 18.
personal pension, you receive £100 invested in your pension basic, higher or additional contac ase settlement is tax-free, but the balance is taxed
t us as income. Gift away
fund. rate you receive the full for mo The first £325,000 of any estate is tax-free and
If you are a higher-rate taxpayer, or the
If you are a higher rate tax payer paying 40 per cent, you may relief straight away. in re for married couples / civil partnerships the first
format redundancy payment moves you into a higher
able to claim an additional tax relief. Depending on how much ion. tax band, discuss if you can get the payment £650,000 is tax free. Beyond this, IHT can be
you earn over the higher rate tax band, any additional tax structured so that part of the payment is levied at 40 per cent, taking a large bite out of
deferred into the next tax year. Also, a lifetime’s work. However, making annual
depending on your employment outlook and gifts to family or friends can reduce the
The articles featured in this publication are for your general information and use only and are not intended to address your particular requirements. They should not be relied
age, it may also be beneficial to have a potential for an IHT bill. Each person can give
upon in their entirety. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the
date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional portion of any redundancy paid into your up to £3,000 per tax year, plus as many gifts
advice after a thorough examination of their particular situation. Will writing, buy-to-let mortgages, some forms of tax and estate planning are not regulated by the Financial
Services Authority. Levels, bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. pension.
2 3

3. Income tax and income tax allowances
End of Tax Year planning Personal allowance
Income tax personal allowances
2011-12
£7,475
2012-13
£8,105
Personal allowance for people aged 65-74 £9,940 £10,500
With the End of Tax year looming, make sure you take advantage of all of the tax Personal allowance for people aged 75 and over £10,090 £10,660
breaks available to you. There is still time to make provisions to avoid paying any
Married couple’s allowance for people aged 75 and over £7,295 £7,705
unnecessary tax. As the saying goes; use them or lose them.
Income limit for age-related allowances £24,000 £25,400
1. From the 2010-11 tax year the Personal Allowance reduces where the income is above £100, 000 - by £1 for
every £2 of income above the £100,000 limit. This reduction applies irrespective of age.
Use your ISA allowances Use your pensions allowance investors should also check that (It’s not just parents who get a 2. These allowances reduce where the income is above the income limit for age-related allowances by £1 for every
ISAs should be at the top of most Almost everyone can pay into a HM Revenue & Customs isn’t gift exemption on marriage, it £2 of income above the limit. For the 2010-11 tax year the Personal Allowance for people aged 65 to 74 and 75
people’s savings and investment pension and obtain tax relief on deducting too much tax in can be used by others, including and over can be reduced below the basic Personal Allowance where the income is above £100,000.
list, these are the reasons why: the contributions, even if you are respect of interest and dividends. Grandparents, but the limits are
Tax free growth – no capital a non-earner. This means a When you receive a coding lower. Check www.hmrc.gov.uk
gains tax £1,000 contribution costs just notice, cross check against any for the current limits). Bands of taxable earned income
I No need to record your ISA £800, the balance being paid by accompanying notes. Capital gains tax (CGT)
income or profits on your tax the Government. Most higher 2011-12 2012-13
Inheritance tax (IHT) You could make use of the capital
return rate taxpayers can reclaim up to Every tax year you can ‘gift’ gains tax annual exemption for Starting rate for savings: 10%* £0 - £2,560 £0 - £2,710
I Tax free income on corporate a further £200 tax relief via their £3,000 which will not count 2011/12 of £10,600 for each
bonds and other fixed interest tax returns. The current tax rules
Basic rate 20% £0 - £35,000 £0 - £34,370
towards your total estate and if individual, including your
stocks and no further tax on limit the amount that can be you do not use the full exemption children. For example, it may be Higher rate 40% £35,001 - £150,000 £34,371 - £150,000
everything else contributed to registered pension in one year, you can carry it worth selling shares if they have Additional rate 50% Over £150,000 Over £150,000
I The income has no impact on schemes each year as tax- forward but for one year only. delivered losses because these
age related allowances relieved contributions to £50,000 Gifts of up to £250 a person are can be set against gains made on * The 10 per cent starting rate applies to savings income only. If your non-savings income is above this limit then
making it perfect for or 100 per cent of UK taxable also exempt, but you are not other assets this year. the 10 per cent starting rate for savings will not apply.
supplementing pension earnings, whichever is lower. permitted to use the two The tax on profits from the sale The rates available for dividends are the 10 per cent ordinary rate, the 32.5 per cent dividend upper rate and the
income in retirement A new three year “carry together. If a gift is regular, of a buy-to-let could be cancelled dividend additional rate of 42.5 per cent.
I The allowance will increase in forward” of unused annual comes out of your income but out by losses on equities. If loss
the 2012/13 tax year by £600, allowance was introduced from
therefore the overall personal 2011/12. Initially you will be able
does not impact upon your making disposals are not made Inheritance tax
standard of living, any amount until later they cannot be carried
allowance will be £11,280 in to carry forward unused can be given away and ignored back against gains in previous Inheritance tax
total, £5,640 can be invested allowance from 2008/09, 2009/10 for IHT. You will need to keep full years.
into a cash ISA. The whole and 2010/11, provided you were 2011-12 2012-13
records of any gifts made, to Main residence relief If you
allowance can be put into a a member of any registered assist with probate. own more than one residence, Rate 40% 40%
Stocks and Shares ISA, or the scheme during the relevant year. You cannot use your ‘annual you can elect which one you
remaining £5,640, if wishing The exercise will assume that a
Individual nil-rate band £325,000 £325,000
exemption’ and your ‘small gifts want to be treated as your
to invest in both. If you are £50,000 annual allowance exemption’ together to give principal private residence (PPR) Since 9 October 2007, it has been possible to transfer any unused IHT nil-rate band from a late spouse or civil
unhappy where you are applied for those years (rather someone £3,250, but you can use for CGT purposes. partner to reduce the estate of the surviving spouse or civil partner.
invested you can transfer your than the actual figure) and use a your ‘annual exemption’ with any
ISA to another provider. notional carry forward calculation other exemption, such as the All of the tax benefits quoted
if total contributions exceeded Individual savings accounts (ISAs)
‘wedding/civil partnership above can be changed and the
£50,000 during a tax year. ceremony gift exemption’. exact benefit will depend on ISA maximum limits
Check your tax code Ie: If one of your children your circumstances.
Having the wrong tax code can marries or forms a civil
2011-12 2012-13
be costly. Many pensioners can partnership you can give them Some aspects of Tax Cash £5,340 £5,640
be on the wrong code as they £5,000 under the wedding/civil Planning are not regulated
Stocks and Shares (overall limit) £10,680 £11,280
have not been moved on to the partnership gift exemption and by the Financial Services
higher personal allowances that £3,000 under the annual Authority. From 2010-11 these limits became indexed in line with RPI increases to the preceding September and rounded up
kick in at 65 and 75. Savers and exemption - a total of £8,000. to be divisible by £120.
Lifetime and Annual allowances
Allowance
2011-12 2012-13
Lifetime allowance £1,800,000 £1,500,000
Annual allowance £50,000 £50,000
The government announced on 14 October 2010 changes to the lifetime allowance for tax relief on pensions. From
2012-13 onwards, the lifetime allowance for pension savings for individuals will be reduced from the current level
of £1.8 million to £1.5 million.
4 5

4. Life Assurance ISA Investing
ISA
An ISA is another form of a tax efficient The Mini ISA was only allowed to hold one of
wrapper in which you can place investments to the two components (shares or cash). As a
We all want to protect our give them tax efficient status. consequence, many investors would tend to
family from financial hardship, For the tax year 2011/2012 an individual’s invest the two components separately, with
What are the options? Family income benefit total annual allowance limit to an ISA is different providers. This meant that they would
so it is important to know The cheapest, simplest form of This offers the policyholder’s £10,680, of which a maximum of £5,340 can often end up with two Mini ISAs in a tax year
be held in cash. These figures are increasing in rather than one Maxi ISA.
which products to choose, life assurance is term assurance. dependants a regular income 2012/13 to £11,280 and £5,640 respectively. Tax position of ISAs?
loophole
There is no investment element from the date of death until the
including the most suitable and it pays out a lump sum if end of the policy term, instead of
Subject to the overall limits, you can split
your ISA between the following:
Investments are free from capital gains tax, but
investors no longer receive the 10 per cent tax
sum assured, premium, terms you die within a specified period. any lump sum payment. STOCKS AND SHARES credit on dividends from UK equities. This was
Types of term assurance are: Lifetime protection You can hold stocks and shares and managed removed from April 2004, so now such
and payment provisions. Level term assurance investment funds within an ISA. dividends are fully taxable from this date,
A “whole-of-life” assurance People aged between 16 and 18 can
Which offers the same payout policy is designed to provide It is possible to invest up to £10,680 into although there will be no further tax liabilities,
open two cash ISAs in the same tax
throughout the life of the policy, cover throughout a person’s stocks and shares inside an ISA in the tax year even for higher rate taxpayers. However,
year, which is an occurrence that is not
your dependants receive the 2011/2012. investments in corporate bonds and gilts are
lifetime. The policy only pays out allowed for anyone else.
same amount whether you died CASH free from tax and are able to reclaim the full
once the policyholder dies, 20 per cent tax credit. 16 year olds are eligible to open their
on the first day after taking the providing the policyholder’s You can as an option hold a proportion of your own adult cash ISA, worth £5,340 (or
policy out or the final day before ISA allowance in cash, which will earn tax-free Why invest?
dependants with a tax free lump £5,640 next tax year), as well as saving
it expired. interest. You are able to invest £5,340 of that The stocks and shares element of the ISA will
sum. Depending on the up to £3,600 in a Junior ISA (JISA). They
annual allowance into a cash deposit account allow you to take advantage of the reduction
This is normally used alongside individual policy, policyholders can save almost £10,000 each tax year
in the tax year 2011/2012. in risk by pooled resourced company share
an interest-only mortgage, where may have to continue in cash ISAs.
As long as you do not exceed the maximum investing. The stocks and shares element of an
the debt has to be paid off only contributing right up until they ISA allowances in any one tax year, you can ISA can be used to invest in many different Allowing children aged 16 and 17 to
on the last day of the mortgage die, or they may be able to stop split your ISA investments. For instance, in the types of investment fund including unit trusts, have both a JISA and an adult cash ISA
term. 2011/2012 tax year, you could invest just investment trusts and OEICS. is something that has not been widely
paying in once they reach a
Decreasing term assurance £2,000 into a cash ISA and put the remaining Such funds are actively managed by a publicised but is something that, if
stated age, even though the
Here the payout reduces by a £8,680 allowance into a dedicated investment professional fund manger who will buy and sell possible, families should make the most
cover continues until they die. of.
fixed amount every year, finally ISA that may provide higher returns than a shares on your behalf, with the aim of
There are policies that also The full £3,600 JISA amount can be
ending up at zero by the end of Cash ISA over the medium to long term. achieving the maximum possible return on
offer cover for additional You only have one ISA allowance available your investment. In the past, over the medium saved in cash or divided between cash
the term. Because the level of benefits, such as a lump sum each tax year (6th April to the following 5th to long term, this type of investment has and stocks and shares, but whilst
cover decreases during the term, that is payable if the policyholder April). Subject to the rules above, you can produced excellent levels of growth, although children can open an adult cash ISA at
premiums on this type of becomes disabled or develops a however split your ISA allowance between two it is important to remember that past the age of 16, they won’t be able to
insurance are lower than on level specified illness. Whole-of-life different providers, such as a Cash ISA with performance is no guarantee for the future, open a stocks and shares adult ISA until
policies. This cover is often assurance policies are often one provider and an Investment ISA with and the value of such investments can fall as they are 18 years old.
bought with repayment reviewable, usually after ten another. well as rise. The return is quite nice when a young
mortgages, where the debt falls years, at which point the With effect from April 2011, the Government adult takes advantage of both this and
during the mortgage term. confirmed that each tax year, it is their next year’s full cash ISA allowance, they
insurance company may decide
Increasing term assurance intention to raise the amount that individuals would have saved an extra £10,980. If
to increase the premiums or can put in to their annual ISA allowance by The value of your investment and the income
The potential payout increases by reduce the cover it provides. from it can go down as well as up and you that £10,980 were to grow at an
inflation each April, therefore the limits for
a small amount each year. This is may not get back the original amount average tax-free interest rate of 4 per
2012/13 are £5,640 into a cash ISA with the
a useful way of protecting the Please contact us to review invested. Past performance is not a reliable cent, it would add about a further
remainder up to the total allowance of
initial amount against inflation. your life protection indicator for future results. Please contact us £18,000 to the overall ISA fund around
£11,280 available to invest in an investment
for further information or if you are in any the age of 30, without the inclusion of
Convertible term assurance requirements. ISA.
doubt as to the suitability of an investment. the value of the JISA fund, which when
A more flexible policy that allows Mini and Maxi ISA?
added would make a very tidy return.
the option of switching in the Since April 2008, the terms Mini and Maxi ISAs
future to another type of life became technically incorrect. Over previous
The value of your investment and
assurance, such as a ‘whole-of- years, many people used their ISA allowances HM Revenue and Customs practice and
by splitting the amount they invested in to two the law relating to taxation are
the income from it can go down as
life’ or endowment policy, well as up and you may not get
without having to submit any different parts as a Mini cash ISA allowance complex and subject to individual
with their bank or building society and a Mini circumstances and changes which back the original amount invested.
further medical evidence. Past performance is not a guide to
stocks and shares ISA allowance with an cannot be foreseen
investment company. future performance.
6 7

5. Annuity Q&A
Q. Is my fund that has already been
saved affected into occupational
pension schemes whilst employees
were contracted out affected?
A. No, your money already held should
remain in the scheme to provide members
Protected
Before you plan your retirement, you will Choosing an annuity will depend largely on Shopping around with a pension, on retirement, in
accordance with scheme rules.
need to appreciate how the money you have your financial circumstances, the value of You can purchase your annuity from any
in your pension pot will be used to provide your pension or pensions, your retirement provider, this means it need not be from the Q. What happens to ‘protected rights’
you with an income when you retire. One expectations and, possibly, on your health or company you had your pension plan with. already saved?
option to choose is to invest most of your the health of your dependants. Be aware that the amount of income you A. At the moment the rebates together with
Rights
pension in an annuity, which pays you a You can also decide whether you would receive from your annuity can vary between any investment return are known as
regular income throughout your retirement prefer a level annuity or an escalating different insurance companies, so it is “protected rights”. There are currently
years. annuity. Level annuities pay you a fixed level essential to receive comparisons before statutory restrictions on how protected
An annuity is purchased using the lump of income each year, while an escalating making your final decision. rights can be used. This is because they are
sum from your pension or savings, which annuity increases each year in line with intended to be used to provide benefits in
Open market option place of the additional State Pension.
provides you with a guaranteed income for inflation or at some fixed rate. Pension fund providers are now legally However, from 6 April 2012 these
the rest of your life. The size of the income The income generated from an escalating obliged to inform you of your rights to restrictions will no longer be in force and
you receive depends on the size of your annuity is usually significantly lower in the choose an annuity. You can decide to take former “protected rights” benefits can be
The Government is to abolish contracting Begin planning
pension fund, your age, your gender and first few years than you would expect to the ‘open market’ option providing that you treated the same as other pension benefits.
out of the additional State Pension (S2P), Considering how abolition will affect your
your health. receive from a level annuity. have not already taken any benefits from They will be retained in the pension scheme
also called State Second Pension on a scheme.
Decision making You can also decide whether you want your pension or agreed an existing annuity unless a transfer request has been made.
defined contribution basis from 6 April You will need to decide whether your DWP currently holds records showing
As you near retirement, your pension fund your income to be paid for a guarantee with your pension provider. 2012. scheme continues or whether you need to details of an individual’s membership of a
provider will inform you of your pension fund period, perhaps 5 or 10 years, but this will Before you take out your annuity, you can
also reduce the amount of initial income This means that from 6 April 2012 make changes as National Insurance contracted-out defined contribution
total and offer you a quotation based on the also decide to withdraw a tax-free lump sum scheme.
payable. affected employees will no longer be able rebates will no longer be paid.
size of your fund. Generally, most people of up to 25 per cent of the total value of As all the rules around protected rights
to use a Contracted Out Money Purchase You may also want to consider the
purchase an annuity by the time they reach Enhanced annuity your pension, known as a Pension and the tracking of those rights are to be
“COMP” occupational pension scheme to impact of the Government’s plans for
age 75. You may qualify for an enhanced annuity Commencement Lump Sum. removed, the accuracy of DWP’s records
contract out. employers to automatically enrol eligible will decline over time. It is therefore
or an impaired life annuity, if you What to do
suffer from poor health. These
Employees will automatically be brought employees into qualifying workplace important that schemes ensure that their
When annuity rates are falling it might be
usually pay a higher income back into the additional State pension pension schemes. records are up to date prior to abolition.
tempting to hold off buying an annuity, until
amount if your health problems system unless they become a member of a You should discuss your options with You should also consider now the
rates increase. This may not necessarily be administrative easement of having to track
(such as high blood pressure, scheme which contracts out on a salary your advisors. Any changes will need to be
the best course of action and should you protected rights benefits separately and its
kidney problems or diabetes) related basis. discussed with pension advisors, scheme
decide to delay your purchase, rates could incorporation into the running of your
could potentially reduce your Defined Benefit schemes can continue to trustees and members alike.
fall even further. In addition, every month scheme.
lifespan. Smokers or people without an annuity is a month without contract out on a salary related basis. Prepare to pay the correct National
diagnosed with obesity may income and this lost income may not be What happens from 6 April 2012? Insurance contributions after the abolition Q. Are schemes affected that hold both
also be able to receive an recovered in the future. You will not be able to use your COMP date. a section contracted out on a defined
‘enhanced annuity’. occupational pension to contract Think about how you will communicate contribution (money purchase) basis
and a section contracted out on a
employees out of the additional State the National Insurance contribution
defined benefit (salary related) basis
Pension. changes and any scheme changes to your (a Contracted-out Mixed Benefit
Your employees may, depending on their employees. There is a fact sheet available (COMB) scheme)?
For mo level of earnings, start to build up on the website www.direct.gov.uk which A. No further National Insurance rebates
inform re entitlement to the additional State Pension you can give to employees to provide them will be payable for the period beyond the
ation a abolition date for employees contracted out
retirem bout instead. with information on what the abolition of
ent pla You will no longer be required to make contracting out may mean for them. on a defined contribution (money purchase)
please nning basis. Members contracted out on a defined
contac the ‘minimum payment’ contributions into
discuss t us to
benefit basis are not affected.
your contracted-out occupational pension You should consider discussing The certificate for this scheme will
y
require our scheme. these changes with your remain valid only for the section of the
ments Both you and your employees will pay professional financial adviser. scheme contracted out on a defined benefit
.
the standard rate National Insurance basis. Your scheme will not need to apply
contributions instead of the reduced for a new defined benefit contracting-out
certificate as only the contracted-out
contracted-out rate.
defined contribution part of the COMB will
be cancelled after abolition.
8 9

6. Q&A
Can I gain tax relief?
Just like other pensions, everyone
including non-earning spouses, can
gain basic rate relief on payments into
a SIPP. High earners obtain more relief
as they complete their tax returns,
subject to various limits. 25 per cent of
the value of your SIPP can be taken as
tax-free cash to spend on anything you
SIPPs
There are a number of ways of saving for
retirement and various types of pension
tax-free lump sum the remaining 75 per cent
can be taken gradually as an income or as
like after you reach 55 years of age. plans. The Government believes retirement additional lump sums. Both are subject to
What happens to the rest of my savings are so important that it offers your tax rate at that time, but this may be
savings? generous tax benefits to encourage people potentially a lower tax rate than the one you
This is where SIPPs can prove very to make their own pension provision. It is currently pay, depending on your
attractive. You are no longer required also the case that you may be able to circumstances at the time.
to spend the remaining 75 per cent of contribute into more than one pension, you Growth
your fund on an annuity or guaranteed
Investing
could contribute to a Self-Invested Personal UK pension fund investments grow free of
income for life, when you retire. Savers Pension (SIPP) as well as to your company income and capital gains tax, except for the
can manage their own SIPP to meet pension scheme for example. 10 per cent tax credits on UK dividends
their changing individual needs. As an
example, you may still hold high- Pension wrapper which a pension scheme cannot reclaim.
yielding bonds, shares and funds to A SIPP is basically a pension wrapper, it Where tax has been deducted at source on
in a recession
deliver an income without relinquishing holds investments and provides the same tax income within a pension fund like rents,
ownership or control of your capital, advantages as other personal pension plans. coupons and interest, this is reclaimed by the
after you have retired. SIPPs allow you to take a more active pension provider and the tax credited back
Do I have to manage the fund? involvement in your retirement planning. into the pension fund. Assets held in the
No. Some SIPP providers offer access to You generally choose a number of different fund that carry no tax at source like
discretionary fund management investments, unlike some other traditional Government gilts or offshore investments,
The possibility of recession and a balance sheets with some exposure to bad debt, and bank
services as an option, so a professional pension schemes that can be more are not subject to tax declaration or
regulation is still ongoing and unclear. However, Banks could see
can pick stocks and shares for you; restrictive, SIPPs offer greater choice over payments. second credit crunch will create a a sharp rally in their share prices should the economic picture be
subject to the terms of your agreement. where your money is invested. Investment managing
Are there drawbacks? You could consolidate your retirement You cannot draw on a SIPP pension before
terrifying outlook for investors. better than expected and the Euro zone crisis be averted.
However, this is highly uncertain, and as such banks appear a high
SIPPs are not suitable for people who savings and bring them together by age 55 and there are usually additional costs Nerves of steel and a strong risk proposition.
do not wish to take any interest in or transferring in other pensions into your SIPP. involved when investing. You may need to
responsibility for their retirement constitution will be required by Unless you expect the UK to enjoy a strong cyclical recovery, the
This may make it easier for you to manage spend time managing your investments. most sensible policy seems to be to concentrate on ‘defensive’
savings. Cheaper options, such as your investment portfolio. SIPPs charge higher costs than a stakeholder
investors in 2012. The turbulence businesses. These are companies which survive and thrive in bad
Stakeholder Pensions might prove more
appropriate, as they require less Tax relief and you may pay two sets of management will continue until some definitive economic conditions. They tend to supply goods and services that
people find hard to cut back on even when incomes are being
attention. SIPP investors receive tax relief on their fees for the wrapper and the underlying action is taken to save the euro squeezed, these sectors are pharmaceuticals, utilities and
contributions, which could deliver benefit investments.
Will my employer contribute?
This will depend on your employer, so from between 20 per cent to 50 per cent tax (or it is allowed to fail). telecommunications etc. Many pay attractive dividends to
relief depending upon your own Forecasts for the euro zone suggest a second recession is widely investors and have strong balance sheets showing large amounts
ask them. If you have access to a
company or occupational scheme, and circumstances. predicted as austerity measures take effect. The UK exports 40 per of cash.
The value of your investment and the The yields on offer make these areas an excellent choice for
your employer is willing to contribute Most returns from investments within a income from it can go down as well as cent to the euro zone, so this is a worry for our future. A forecast
towards that, it is advisable to SIPP are free of income and capital gains tax. by the Centre for Economics and Business Research (February equity income managers. Net yields on average of 4-5 per cent
up and you may not get back the are common, and any income can be reinvested to boost growth
investigate that option first. However, However, unlike dividend payments received 2012) predicts the UK economy will shrink by 0.4 per cent this
original amount invested. The Tax if not needed. With interest rates likely to remain low, it is thought
you can have SIPPs and company outside a SIPP, there is no 10 per cent tax year, but could be as much as 1 per cent if the euro zone were to
pensions at the same time. benefits of SIPPs will depend on your the yields on offer from this type of company could prove popular
credit applied to dividend payments within a break up.
personal circumstances. The rules of with income-seeking investors, pushing prices even higher. One
When is a good time to set up a SIPP. Maintaining international confidence is key to the UK so it can
SIPPs may change. SIPPs are not suitable main consideration to remember is that unlike cash, stock market
SIPP? retain its triple-A credit rating. Failure to do so would result in a
Tax advantages for everyone. Please seek Independent investments will fluctuate in value and so neither income nor
As soon as possible, the sooner you get dramatic rise in the UK’s borrowing costs, and a potential
SIPPs are long-term savings vehicles with Financial Advice if you are unsure if they capital is guaranteed.
started, the longer your money has the ‘debt-trap’. Only time will tell who is right.
potential to grow and work in your certain tax advantages, so you should be are right for you.
prepared to invest your money until at least What does this mean for investors? The value of your investment and the income from it can
favour. Whether we slip back into recession or not, growth will probably
age 55. There are various options for taking go down as well as up and you may not get back the
If you have any doubts about the remain low. This means, it may be wise to avoid investing in original amount invested. Past performance is not a guide
benefits from your SIPP that you should be
suitability of a SIPP or you need further businesses which rely on strong economies like retailers and to future performance. Please contact us for further
aware of. Generally, you can receive up to 25
advice, you should seek advice from a lifestyle providers, Bank investing is also difficult to justify. The information or if you are in any doubt as to the suitability
per cent of the pension fund value as a
suitably qualified financial adviser. prospects for the sector remain unclear. Businesses still have of an investment.
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