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Retirement Planning
Pension Rules
- A maximum lifetime allowance for Pension Funds of £1.75m (2009/10) increasing to £1.8m by 2010. It will then be frozen at this level until 2015/16.
- Contributions are limited to 100% of salary with a maximum of £245,000 per annum (2009/10) increasing to £255k by 2010.
- The earliest retirement age moves to 55 from 2010.
- You can take benefits from a Pension Fund and continue working.
- 25% of a Pension Fund can be taken as tax-free cash.
- You can take the tax-free cash and decide to defer taking an income.
Budget 2009 – Highlights
- Higher rate tax relief remains on pension contributions for anyone with income of less than £150,000.
- From 6 April 2011, tax relief on pension contributions will be restricted to 20% for those people with income over £180,000.
- From 6 April 2011, higher rate tax relief will be reduced for those people with income between £150,000 and £180,000.
- In the meantime, individuals with income of £150,000 or more will continue to receive higher rate tax relief on existing monthly contributions.
- In the meantime, individuals with income of £150,000 or more who have not made any pension provision will continue to receive higher rate tax relief on contributions of up to £20,000pa.
Therefore, the changes announced only apply to you if:
- Your income is £150,000 or higher in any of the current and previous two tax years, AND
- You change your “normal ongoing regular” pension savings, AND
- Your total pension contributions / savings exceed, or are likely to exceed £20,000 in the tax year.
This means that the vast majority of higher rate tax payers will continue to receive higher rate tax relief on their pension contributions.
Providing the right level of income in Retirement
For retirement planning - as a general rule you can multiply the level of income by 25 to calculate the total amount of money you will need at age 65 to provide that income.
The cost of delay in retirement planning
If a level gross investment of £10,000 pa into a Pension Fund commenced at age 30, a projected fund of £713,000 would be available at age 60. This example shows what could happen if the start of the regular annual contribution was delayed by 5, 10 or 15 years.
Years to Retirement |
Fund Value |
% Reduction in fund |
25 Years |
£510,000 |
-28% |
20 Years |
£352,000 |
-51% |
15 Years |
£228,000 |
-68% |
