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Pension Planning

Remarkably enough pensions have been making headlines recently and usually for the wrong reasons.

The recent activity tends to be focused on so-called ‘final salary’ occupational schemes and the security they do (or do not) offer their members.

Having said that, it seemed to me that it might be useful to flag some of the more positive opportunities available from a little pro-active pension planning, particularly for the self-employed and those running their own businesses, that allow you to re-work remuneration packages in the most tax and national insurance-friendly way.

For instance, employing your spouse at an income level just over the limit for tax and National Insurance means that, for the purposes of qualifying for the new State Second-tier Pension (S2P), your partner will be credited with state benefits relating to earnings.

However, paying your wife or husband just below the tax and NI threshold can, without affecting net income, create significant pension contributions for them and, what’s more, they attract tax relief. Please note that the spouse must be performing a genuine role and not be paid a nominal amount unrelated to the value of their actual duties.

Another means of taking maximum advantage of personal pension planning is based on concurrency and emanates from changes made in April 2001. Provided certain conditions are met, a member of an occupational pension scheme (OPS) can also invest up to £3,600pa into a personal or stakeholder pension.

It is also possible to make contributions to personal, executive or stakeholder pension schemes without earning any income yourself. Using one good year’s earnings as a basis year, and up to the current cap of £105,600, you can cease to have net relevant earnings for the subsequent five years, whilst continuing to work, and still be eligible to make contributions. What’s more, the percentage of the earnings contributions limit is based on the year of payment and not the basis year.

Finally, and perhaps of most interest to employers with a medium sized workforce who might be approaching salary reviews, there is the ‘zero-cost’ 3% group personal pension scheme. This allows the employer to save National Insurance contributions on payroll and receive tax relief on the full amount paid in to the pension, creating a staff pension scheme with no extra employment costs.

I hope that’s put a bit more of a positive spin on pensions and shown that it is still possible to work within the restrictions of the tax and national insurance regime to secure valuable benefits.

Article By

^{_{David Holbrook
Managing Director
Hallmark-ifa
Tel. 01904 630333
Email: david.Holbrook@hallmark-ifa.com
www.hallmark-ifa.com}} 

^{_{The above is based on understanding of current law and Inland Revenue practice, which may change in future. No guarantees can be given regarding the effectiveness of any arrangements entered into on the basis of these rules.}}

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