Here are the top 5 tips for pension transfers. If you are considering a pension transfer then you would be wise to study these simple but effective tips.
1. Find an Independent Financial Adviser
The pension reform has made pension legislation so complicated that you really do need to seek the advice of an independent financial adviser and preferably one that specialises in pensions.
2. Pension Charges
Make sure you carefully check the charges on the contract you are being offered. How do they compare to other similar contracts? The growth of the plan is affected by the charges. Are they upfront or spread over a term. It does make a significant difference to the end fund size.
3. Retirement Age
If you have less than 10 years to retirement you probably need to think carefully about whether or not the pension transfer is a viable option. Can you make up the cost of the transfer charges?
4. Beneficiary Nominations
You have the right to nominate beneficiaries that will receive the pension benefits should you die before retirement. Make sure your hard saved pension fund goes to the people you want it to go to.
5. Contact Us for Specialist Pension Transfer Advice
We are independent pension transfer specialists and will give you unbiased advice about whether a pension transfer is suitable as well as the alternative options you could consider. Contact us today for advice
by admin on March 11, 2010
How pension tax relief on pension contributions works
The way you get tax relief on pension contributions depends on the type of scheme you are a member of.
Company or public service pension schemes
If you are a member of a company or public service pension scheme the your employer will take the pension contributions from your pay before deducting tax (but not National Insurance contributions). You will then only pay tax on what’s left. So this means if you are a basic or higher rate tax payer you get the full pension tax relief straightaway.
Personal pensions
You pay Income Tax on your earnings before any pension contribution, but the pension provider claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £80 you pay into your pension, you end up with £100 in your pension pot. If you pay tax at higher rate, you can claim the difference through your tax return or by making a claim to HM Revenue & Customs (HMRC) by telephone or letter.
What happens if you don’t pay tax?
If you don’t pay tax you can still pay into a personal pension scheme and benefit from basic rate tax relief (20 per cent) on the first £2,880 a year you put in. In practice this means that if you pay £2,880 the government will top up your contribution to make it £3,600.
There is no tax relief for contributions above this amount.
Limits on tax relief
You can save as much as you like into any number and type of registered pension schemes and get tax relief on contributions of up to 100 per cent of your earnings (salary and other earned income) each year, provided you paid the contribution before age 75. But the amount you save each year toward a pension is subject to an ‘annual allowance’.
For the tax year 2009-10 the annual allowance is £245,000 and for the 2008-09 tax year it was £235,000. You pay tax at 40 per cent on any contributions you make that are above the annual allowance.
Other tax advantages of pensions
The pension fund doesn’t pay tax on any capital gains or investment income.
Also, when your pension matures you can take up to 25 per cent of it as a tax-free lump sum, provided your pension scheme rules allow it, you are under 75 and your total savings are within the ‘lifetime allowance’ for the year in which you take your benefit. For the tax year 2009-10 the lifetime allowance is £1.75 million and for 2008-09 it was £1.65 million.
Lump sums or income drawn from savings above the lifetime allowance will be subject to tax charges.
Repaying tax if your pension contributions are refunded
You can usually only get your pension contributions refunded if you withdraw from a company scheme within two years of starting payments. Certain events might shorten the time limit. Tax is deducted at 20 per cent for refunds of up to £10,800 and at 40 per cent on any excess above this. The scheme administrator deducts the tax before making the refund.