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2004/05 Year End Strategies
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Retirement saving strategies
According to Government sources, almost 50% of the retired population does not pay tax. That means that five million pensioners could be living on less than £130 per week. If you want to avoid poverty in retirement, you need a strategy to invest for it. Traditionally, retirement savings have focused on tax-advantaged pension savings - that is, investment of a percentage-limited amount every week, month or year in company or private pensions - but recent poor performance and low annuity rates have made many question the wisdom of relying largely on pension schemes and individual pension arrangements.
Nevertheless, savings at rates of up to 40% of earnings can be invested into pensions, with tax relief of up to 40% on the contribution and subsequent investment in a low-tax regime. This investment will ultimately provide a tax-free lump sum and a (taxable) pension.
Parallel savings strategies can work well for those with an eye on long-term savings. Possibilities include:
- Property - buy-to-let property might provide a low net rental return, but most investors anticipate long-term growth. Investment through collective schemes in enterprise zone property and flat conversions can offer significant tax breaks.
- Individual Savings Accounts - up to £7,000 a year can be invested in these tax-advantaged savings accounts, with no additional tax to pay on income and tax-free capital gains. Those aged 16 to 17 can invest up to £3,000 a year in a cash mini-ISA or the cash element of a maxi-ISA.
- National Savings, Banks and Building Societies - many offer an interest incentive to those committing to regular savings. Check the High Street and internet for rates on offer.
- Stock Market - with the caveat that you should never risk more than you can afford to lose, the Stock Market offers the possibility of long-term growth, but the risk of serious losses. Unit trusts and investment trusts offer the chance to spread your risk and add an element of management without the expense of broker advice, but they can be undervalued when compared with the underlying investments.
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