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Basic Pensions InformationBasic Pensions InformationWhy is a pension tax efficient? What is a pension, and what are the main types? A-DayWhat is A-Day and why is it happening? What are the main A-Day changes for artists? How will A-Day improve the lives of Artists? What are the negative aspects of A-Day?
Why is a pension tax efficient?Contributions made to a pension scheme attract the tax relief at the top level of income tax. This means that
Why save using a pension?A pension is the most tax efficient method of saving for retirement for most people. A pension is highly important as the population is living longer and it is estimated that 1/3rd of peoples lives may be spent in retirement!! What is a pension, and what are the main types?A pension is a saving that intended to provide a regular income for retirement. There are two main types of pension available: Company Pension Personal Pension These usually supplement the Basic State Pension & related state benefits. What is A-Day and why is it happening?What is A-Day? A-Day came into effect at the start of the new tax year which is the 6th April 2006. A-Day is the title given to a number of changes regarding the rules on pension saving. Why is it happening? Previously pension contributions were strictly controlled by the amount people earned and their age, in an effort to encourage more people to save for pensions and to simplify the system the rules are being changed on A-Day. What are the main A-Day changes for artists?Contributions The greatest benefit to artists is the rules affecting changes to contributions. Greater flexibility in the rules means that pension contributions can be up to 100% of salary. (This is capped at £215,000 per year, rising progressively by £10,000 per year until 2010/11 reaching £255,000). In effect this means that artists can save more of their income during the periods when they are earning more and reduce the pension contributions during leaner times. The maximum amount that can be contributed if no earnings are made in a year is £3,600. There is also no limit on contributions in the year before retirement (Limited by Life Time Allowance see below). Scheme Membership Previously scheme rules meant that pension savers could only contribute to one scheme however A-Day changes mean that savers can now put money into a company pension scheme and a personal pension scheme at the same time. This rule is very attractive to artists who are members of a multi-employer / pension scheme and are also earning income through self employment. An example of this may be an actor who works across a number of employers who contributes to the Equity Pension Scheme (EPS) and also subsidises this income earning money on a self-employed basis. The actor can continue as a member of EPS and contribute to their own personal pension plan. A Day will provide the ability for savers to switch some or all of their contributions into a personal scheme. (See Employers Pension Schemes) Flexible Retirement Part of the pension fund may be taken as cash without having to retire, however this benefit is not compulsory and may not be offered by employers or your personal pension plan. Employer Pension schemes There are also a number of changes taking place with regard to employer pension schemes however many of these changes are voluntary for employers and the best advice is to check. Life Time Allowance A pension will be allowed to grow to a maximum of £1.5m (rising progressively until £1.8m in 2010) as a tax free Life Time Allowance (LTA). Currently this is equivalent to an annual pension of £75,000 and will affect very few people. How will A-Day improve the lives of Artists?Artists are predominantly self-employed people with a high degree of instability and insecurity within their working lives. This lifestyle impacts the way savings are viewed.
Previous surveys undertaken have also concluded that large numbers of artists work in other industries as well. The previous pension benefit system was inflexible for many artists due to the rules on saving for pensions and also cumbersome to administer. What are the negative aspects of A-Day?Firstly the new rules mean access to any retirement fund is restricted to 50 years of age or older, this lower limit will increase to 55 by 2010. Those wishing to retire prior to 2010 and who will be under the 55 age limit are advised to seek financial advice. Secondly those people whose pensions are likely to exceed the £1.5m limit need to seek financial advice prior to the A-Day changes.
This site is funded by Arts Council England for educational purposes. No financial advice is given on this site and you are advised to seek personal independent financial advice before undertaking any investment. |
 Tulips Images by Johnny Magee |
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