What is the current ISA allowance? The ISA allowance for 2019/20 has remained at £20,000.
What is the current Junior ISA allowance? The Junior ISA allowance for 2019/20 has increased from £4,260 to £4,368.
What does the Marriage Allowance mean for me? If your wife, husband or civil partner earn more than you, the Marriage Allowance lets you transfer £1,250 of your personal allowance to them which can reduce their tax liability by up to £250 in the current tax year. To benefit as a couple, the lower earner would usually have an income below the personal allowance – normally £12,500.
What is an Asset Preservation Trust?* The St. James's Place Asset Preservation Trust has been specifically designed to receive lump sum death benefits from pension schemes and/or death in service arrangements. Having benefits made payable to the trustees of an Asset Preservation Trust can potentially remove/reduce any IHT liability.
Is an ISA better than a pension? As there are different types of ISA and pensions this can be quite a minefield, but if you’re trying to compare one against the other, I imagine you are thinking about income in retirement, so in a nutshell, both an ISA and a pension offer tax efficient ways to potentially grow your money, but they are very different. Tax relief is available on pensions but not on ISA’s, but income from a pension is taxed. The benefits of an ISA are tax free whenever and however you take them.
Both have their limitations though. Subject to exceptions you can contribute up to £40,000 a year into a pension, but you can’t contribute more than your annual income. If you have no earnings you can still contribute up to £3,600 gross pa. Maximum ISA contribution for the 2018/19 is £20,000. There is also the Lifetime ISA, which St. James’s Place do not offer, which is a hybrid of both a pension and an ISA, but if you are over 40 you will not be able to open one.
It is worth bearing in mind that if you die before reaping the benefits of either plan, they are treated differently. An ISA can be transferred to your spouse or civil partner, if you have one, on death and is credited with an ‘Additional Permitted Subscription’ allowance, which doesn’t take away from their personal entitlement.
Depending on the type of pension, there are differing spousal benefits, but generally some or may be all of your pension is passed to your spouse or civil partner, or you may be able to have more flexible arrangements and pass your pension on to your beneficiaries.
When it comes to the living years, we are all interested in growth and in this respect the pension has the advantage. Current rules allow tax relief based on your marginal rate of tax. So, if you are a higher rate taxpayer, you will get an effective 40p for every 60p you invest on the basis that any tax relief over the basic rate is claimed via your annual tax return. As a basic rate taxpayer this is reduced to a still respectable 20p for every 80p. This is where the pension scores heavily, as you will get the potential growth on the tax relief as well as your own contribution.
Any growth in the pension is very tax efficient, when you come to take your income, and there are several ways to do it, you can usually take 25% of your total fund tax free, with the rest being taxed at your marginal rate. The pension scores again here if you have been a higher rate taxpayer during the contract but fall back to a basic rate taxpayer when you take the benefits.
So, in conclusion, if you want access to your savings before you are 55 years old, it’s an ISA. If you can lock your money away until you are 55, preferably older than that, it’s a pension.
It should always be remembered that individual circumstances will dictate the most suitable way to achieve your financial objectives, so please don’t base your decisions on this article alone. You should always listen to professional financial advice, though you don’t have to take it.
Can I get a mortgage in retirement? Yes, some lenders will allow you to take out a mortgage after you have retired or take out a mortgage that will not be repaid until after you have retired. Different lenders will have different criteria and restrictions that need adhering to.
Divorce and Pensions – For many divorcing couples, pensions will be the second largest asset after the marital home. For all divorce proceedings that commenced on or after 1st December 2000, Pension Sharing Orders came into effect. This allowed couples getting divorced a ‘clean break’ solution by transferring pension rights from one of the parties to the other. Following the Pension Sharing Order, the ex-spouse or civil partner ‘owns’ the benefits entitlement and can choose where to invest their share and when and how to take the benefits (subject to scheme rules and legislation). Pension Sharing Orders are only applicable to England and Wales.
What is a Defined Benefit Pension? A Defined Benefit pension is salary related scheme and pays a secure income for life which increases each year. The income is based on how much you earn and how long you’ve been in the scheme. People who work in the public sector or for a large company are most likely to have this type of pension.
What is a Defined Contribution Pension? This type of scheme includes, personal, workplace and stakeholder pensions. A Defined Contribution Pension accrues a pot which you build up and can take an income from age of 55. This type of scheme usually allows you to withdraw at least 25% of the value tax-free.
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and the value can therefore go down as well as up. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent. The value of any tax relief depends on individual circumstances.
*Trusts are not regulated by the Financial Conduct Authority.