PRESS RELEASE
For immediate release
7 October 2015
Looking to save over the long-term? Top tips on investment vehicles
What is the best home for your long-term savings? For many years the debate has raged and slowly but surely pensions found themselves falling ever further down the pecking order for both the wealthy and those of more modest means, being usurped by the attraction of instantly accessible ISAs.
David Smith, Director, Financial Planning at leading investment and financial planning firm, Tilney Bestinvest, asks whether the tide has now turned in favour of pensions:
“Pensions found themselves down the pecking order in terms of value and importance as, despite the clearly advantageous tax incentives, having to wait until age 55 and then being only able to access a relatively small lump sum as income was hardly appealing.
“However, the pension’s landscape went through a tectonic movement, almost overnight on 19th March 2014, when the Chancellor delivered his budget. The newly announced Pension Freedoms would allow pensioners to access their pension pots without restriction, once they reached age 55. Furthermore, death benefits for pensioners’ beneficiaries became more attractive than ever and created the potential for huge tax savings when passing assets over to the next generation. These changes have led to a radical reappraisal of the relative attractions of pensions compared to other long-term savings’.
At a glance:
Savings Account | Unit Trust/OEICs | ISA | Pensions | |
Instant access? | Yes | Yes – although several days for funds to be sold | Yes – again, may be several days for any funds to be sold | Yes, from age 55 onwards in most cases – No access before age 55 unless due to severe ill health / or protected retirement age |
Limits | No maximum | No maximum | £15,240 p.a. (tax year 2015-16) | £3,600 gross or 100% of net relevant earnings (whichever is higher) subject to annual allowance |
Tax environment | Taxable at marginal rate of savings tax. £5,000 savings rate band available | Income /dividends subject to marginal rate of tax. Gains on funds assessable to Capital Gains Tax, but transactions within funds do not give rise to a Capital Gain | Tax free with effect from April 2016 (Dividend tax credits are non-reclaimable for tax year 2015-16) | Tax free with effect from April 2016 (Dividend tax credits are non-reclaimable for tax year 2015-16) |
Tax relief | None | None | None | 20% immediate relief available. Higher / additional rate taxpayers obtain further relief via self assessment |
Death Benefits | Potentially subject to Inheritance Tax | Potentially subject to Inheritance Tax | Potentially subject to Inheritance Tax | Tax free on lump sum death benefits paid before deceased’s 75th birthday. Subject to beneficiaries marginal rate of tax if deceased was over 75 at date of death |
“The above table is not exhaustive; there are many other investment vehicles out there, some of which may be more suitable than a pension depending upon individual personal circumstances, but it is clear to see that pensions are unrivalled for many. However, the ‘next best’ choice for most are ISAs; they don’t offer the initial boost of an upfront top-up by the State as does a pension but returns on the investment are within a tax efficient environment. ISAs cannot stand-up to pensions when it comes to potential returns, thanks to pension’s tax relief, as the below table clearly depicts:
“Tax relief within a pension effectively provides the saver with an immediate 25% uplift in value**; an ISA or indeed any other investment could take years to get to the same value.
“Some dissenters may still argue that a pension is not attractive as any income is potentially taxable, however, with 25% of a pension fund being available tax free and by carefully using any available tax allowances, income can be taken relatively tax efficiently. In addition, many pensioners are likely to pay lower rates of income tax than they did whilst working, so the percentage tax paid on the way out may well be less than tax relief on the way in.
“This then begs the question, what should I do with my current savings? Well, there certainly is an argument for many to use exiting savings / ISAs / investment fund holdings etc. to fund a pension contribution – and before income tax relief is reduced for those subject to the higher rates which is on the cards. Remember, you can contribute up to 100% of earnings or £3,600 gross per annum, whichever is higher, subject to a maximum of £40,000 in a year. Savings will immediately benefit from the 25% uplift and invariably, you can access equivalent – if not the same – investments in a pension as you can in directly held portfolios or ISAs. More than ever, now is the perfect time to start reviewing your portfolios – and more importantly your pension.”
*As of 6 October 2015
**25% uplift is referring to tax relief on personal pension contributions. Any individual making a pension contribution personally (within their appropriate limits) is entitled to 20% tax relief on that contribution. I.e. a person contributing £80 to a pension will get £20 tax relief put into the pension as well. £20 as a % of £80 is a 25% uplift. Example is for illustrative purposes only
-Ends-
Press contacts:
Jason Hollands
0207 189 9919
07768 661382
jason.hollands@tilneybestinvest.co.uk
Gillian Kyle
0203 818 6846
07989 650 604
gillian.kyle@tilneybestinvest.co.uk
Important information
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This article is not advice to invest or to use our services. Prevailing tax rates and the availability of tax reliefs are dependent on your individual circumstances and are subject to change. Please note we do not provide tax advice.
Before you consider transferring a pension, it is important to ask yourself: Will I lose any valuable benefits or features from my existing pension plan? Will I incur any penalties on my existing pension if I transfer? Is it an occupational final salary pension scheme? (in which case it is very unlikely to be advisable to transfer) Have I considered the charges on my current plan? (a new arrangement may be more expensive – especially if you have a stakeholder pension). If you are near retirement or don’t need the additional flexibility it may not be worth considering a transfer at all.
It is important to consider all of your options, especially in light of the new pension reforms. If you are unsure of your options you should seek professional financial advice or visit http://pensionwise.gov.uk.
About Tilney Bestinvest
Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.
We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.
We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.
Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.
The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.
For further information, please visit: www.tilneybestinvest.co.uk
Disclaimer
This release was previously published on Tilney Smith & Williamson prior to the launch of Evelyn Partners.