Pensions are a priority, so here are the basics

  Posted by: Dental Design      11th February 2022

Planning for retirement is the ultimate exercise in financial forward-planning, but your pension may have been pushed down your priorities list since 2020, particularly if you are a dental practice owner and were focussing mainly on the business.

Investing in a pension plan comes with various tax privileges, so it’s worth exploring if and how your funds could be optimised. Most people can start drawing on their private pension when they reach age 55; in 2028 this will rise to 57. I advise anyone considering accessing their pension savings to speak with a specialist pensions’ advisor. They will go through your options, some of which may not have been on the table before, particularly if your attitude to risk has changed.

Up to 25% of the amount in a pension can be taken as a tax-free lump sum. Whatever is left, so your pension income, is taxable. For 2021/22, the pensions annual allowance limit is staying at £40,000. This is the maximum amount of contributions on which you can earn tax relief. Basic-rate taxpayers get 20% pension tax relief; higher-rate, 40% and additional rate taxpayers can claim 45% (these bands are different for Scotland). It is possible to carry forward unused annual allowances for up to three years, to offset against a contribution that exceeds the annual allowance.

Non-taxpayers also get 20% pension tax relief. You could therefore set up a pension in the name of your child, or spouse who is not employed. Even without earnings, they can build up to £3,600 in a personal pension and enjoy 20% tax relief.

The Lifetime Allowance for pensions, the limit of pension savings you can have before triggering an extra tax charge, is £1,073,100 for 2021/22. This is the same as 2020/21, despite prior expectations that it would change.  

Pensions are a key tool for a tax planning. Figurit is a specialist dental accountant who works with practice owners, associates and professionals to help them maximise their finances, including finding ways to reduce their tax bill. We can put you in touch with a pensions’ expert, while helping you review your other savings and investments, to enable you to enjoy a comfortable future.

For more information, please visit https://figurit.com
or call Figurit (formerly known as Lansdell & Rose) on 020 7376 9333.