7 Ways for Anyone to Boost Their Inc

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to make larger annuity purchases in the earlier years,
so that your tax-free cash receipts will decline while
the annuity payments increase. Your ability to arrange
this sort of fine-tuning forms one of the attractions of
phased retirement plans.
Phased retirement can be especially useful for people
who move from full-time to part-time work rather than
going immediately into retirement. And as part of your
fund remains invested, you will still have some scope to
exercise your investment skills. Your personal financial
position will dictate how many years you decide to
phase, and particularly when you start.
Example: A Pension At Less Than Half Price
Jack Gimblett, 59, is financial consultant to a
Cambridge IT company. He gets an annual fee
of �60,000 and this year is given a �30,000
bonus for helping on the management buy-out.
Jack thinks it s time to do something about his
pension.
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7 Ways For Anyone to Boost Their Income
He cashes in ISAs to put in �20,000; he goes
to the bank and borrows another �20,000. He
puts the �40,000 into a pension plan; as Jack is
a higher-rate taxpayer he gets relief of �16,000.
He does not take any income (he uses income
drawdown with nil pension) but cashes in the
permitted 25% of his fund, which gives him a
�10,000 lump sum.
Jack is now �26,000 better off, so he repays
the �20,000 bank loan and pockets the surplus
�6,000. He has a pension fund worth �30,000
(after taking the 25% in cash), which has cost him
just �14,000 the original �20,000 he put in,
less the �6,000 surplus.
But one of Jack s friends is worried: the Revenue
drew up anti-avoidance rules to prevent re-
cycling the tax-free lump sum in pensions. Jack
knows the answer: the anti-avoidance rules do
not apply so long as the lump sum is no more
than 1% of the lifetime pension allowance and
that 1% amounted to �16,000 for 2007 8 and
�16,500 for 2008 9.
Jack has got his pension fund at less than half
price!
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The Seventh Way Save on Pensions
Now You re 75
When you reach age 75, your choices become
restricted. You have to buy a lifetime annuity or
an Alternatively Secured Pension (ASP), which was
introduced a few years ago to provide an option to an
annuity.
An ASP works rather like Income Drawdown:
" Maximum income is limited to around 70% of
a comparable annuity, the limit being reviewed
annually;
" Maximum income will be based on age 75
whatever your actual age so as you get older, you
will do relatively worse. As in Income Drawdown,
you can switch to a lifetime annuity at any time.
You Can Leave a Pension But Not Capital
Two years ago, the Revenue moved the goal posts on
ASPs. You have to draw at least 55% of the comparable
annuity rate, which limits your ability to build up
funds. When the ASP member dies, any assets which
remain can only be used to pay dependants pensions
or be given to a charity free of tax. Any other payment
will face a swingeing tax charge of up to 70%; as ASP
assets are also subject to IHT, the total tax bill could
reach a staggering 80+%. An ASP remains the only
alternative to buying an annuity at age 75 but on
these terms it seems unlikely to find many takers.
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7 Ways For Anyone to Boost Their Income
Your estate will escape IHT when remaining ASP funds
are used to buy pensions for your beneficiaries but
there is a catch. If your beneficiary dies and some of
your ASP funds still remain, then those funds will be
caught for IHT.
Conventional Annuities
Annuities are called conventional because about 90% of
people buy them when they retire. An annuity provides
income in return for a capital payment and that income
comes with virtually total security.
But this security, which has wide appeal, commands
a price. That price is lack of flexibility: once you have
bought an annuity you will not be able to change it,
cash it in, or transfer it; you probably will not be able
to borrow on it. The moral is simple: you need to think
hard and carefully about what type of annuity you
want.
How To Buy
The first important feature to take on board is the open
market option . Though you may have built up your
pension fund with Insurance Co. X, you do not have to
go to them for your annuity. To find the best rates, look
at the weekend newspapers, which carry annuity data,
or log on the internet; you can go to a broker, for which
you will pay. Industry estimates suggest that you can
do 10 15% better by shopping around than going to
your existing insurer.
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The Seventh Way Save on Pensions
It can make sense, allowing for the cost, to use an
intermediary; you should get some useful advice, and
at least you will have someone to sue if things do go
wrong!
Impaired Annuities
If you are one of the 22% of adults in Britain who
smoke, you may qualify for improved annuity rates.
The insurers view is simple: if your smoking habits,
or a history of illness or surgery, are likely to reduce
your lifespan then you will get a better rate possibly
significantly better.
The guidelines in this area have to be widely drawn
and rates relate very much to individual cases. The test
for smokers is that you smoke 10 or more cigarettes
a day and have done so for the past 10 years. Heart
conditions, many types of cancer and major surgery can
also give you an improved annuity rate.
If you think you come into this category, you need to
take advice and you also need to allow extra time for
the annuity to be agreed. You should speak to your
doctor first his evidence will be needed. Remember
that the insurance company is not interested primarily
in your current lifestyle but in the impact of your
medical history on your life expectation.
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7 Ways For Anyone to Boost Their Income
Standard Annuities: The Choices
Never forget: when you take out an annuity, it is set in
stone. So you need to take a decision on each aspect of
your annuity; you need to be aware how your decisions
will affect your annuity income and you will need to
talk to your spouse or partner.
Your first choice directly involves your partner: do you
want to arrange that, when you die, they will continue
to receive an income for the rest of their life? You
can arrange for your partner to receive 100%, i.e. the
same amount as your own annuity. That is the most
expensive option, and will be even more expensive if
your partner is a good deal younger.
Most people opt for a partner s annuity in the 50 70%
range, which will cost you a 10 15% income cut
compared with the position if you chose to have no [ Pobierz całość w formacie PDF ]

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