News and Views
Never too late to start planning for retirement

From 6th April 2001 a wider range of people are able to join personal pension schemes, as contributions of up to £3,600 a year may be paid by non-earners, by the self-employed and those in non-pensionable employment and by certain employees who are in occupational schemes. The £3,600 limit includes any contributions made by the employer.

You can therefore make pension provisions for a non-working wife, minor children or grandchildren and since basic rate relief is deducted when the contribution is paid a non-earner can establish a pension fund of £3,600 at a cost of £2,080 (i.e. £3,600 less 22%). The new, stakeholder pensions are more sympathetic towards the policyholder, the annual charges cannot exceed 1% of the fund and you are able to transfer into or out of the scheme without charge.

Higher contributions may be paid according to the individual's net relevant earnings, whilst provisions are also made for those who have ceased work or are temporarily out of work to make contributions in the next five years based on their previous earnings.

Under this five year rule it is possible to pay personal pension contributions based on the earnings of one of the previous five tax years instead of the current tax year. For example, for the current tax year 2003/2004 an election can be made for the basis year to be any year from 1998/99 to 2002/2003. It is, however possible to change the election at any time by nominating a later year. This provides a good opportunity for company directors to substitute salary with a more tax efficient dividend in years one to five, revert to salary in year six and still be able to fund personal pension contributions.

Further tax relief is available to higher rate taxpayers through their self-assessment Tax Returns.

If you employ five people or more and have neither an occupational scheme or provide employees with access to personal pension scheme you now must offer access to a registered stakeholder pension scheme. Employers are not required to contribute to the scheme but are responsible for deducting the contributions from pay and pay them over to the scheme provider.