Corporate Pension Schemes

If you are the Trustee or Administrator of a pension scheme and are looking to offer your Members a service through which they will be able to secure their retirement income, contact ‘The Retirement Adviser’ to discuss your requirements. We will be more than happy to meet with you to discuss your objectives and how the service could work for you, your scheme and your members.

‘The Retirement Adviser’ will work with you to set up a bespoke service for your Pension Scheme in line with your requirements. This can be established on a commission or fee basis payable by the Employer, Trustees or Member.

strategies and tactics to avoid being taxed

        Paré also said most investors need not worry about paying the 20% tax on capital gains and dividends. But high income tax payers can use certain strategies and tactics to avoid being taxed at the highest rate. “In some regards it depends on the asset that they’re holding,” Paré said.

Owners of real estate, for instance, might consider a 1031 Exchange or “Like-kind” property exchange in order to defer capital gains. And owners of stock might consider offsetting their capital gains with capital losses.

“Taking some losses to offset the gains is always a very good idea,” said Foss. “(Some investors) tend to forget that they still have some (loss carry-overs) available to offset their gains. So, one good thing is to make sure that people are aware of what they have carrying over.”    

retirees tax bracket

        And Mary Kay Foss, a director at Sweeney Kovar and an instructor for the CalCPA Education Foundation, added: “Generally retirees are in the same tax bracket as when they were working, but now they have the risk of perhaps being in a higher tax bracket,” she said.

Michael Jackson, a partner with Grant Thornton, and a leader of the firm’s private wealth services team, agreed that retirees and would-be retirees have to do what some describe as income-tax bracket planning, but they also have to worry about losing the value of some of their deductions.

“A lot of retirees are going to have to do a lot more planning for what income they want to have at each given year,” Jackson said. By managing their distributions the can avoid having their deduction be worth less or paying taxes at a higher rate, he said.

To be fair, Jackson said retirees and would-be need to coordinate their distributions so that they are tax efficient but not so much that you’re letting the “tax tail lead the dog.”    

high-income taxpayers and retirement

        In the wake of ATRA, high-income taxpayers have to consider whether distributions from their retirement accounts will put them into the highest income tax bracket. A taxpayer might think they are in a lower tax bracket, but the distribution from a retirement account could potentially put them in the highest bracket, he said.

For instance, if you’re single and your income is around $380,000 by the end of the year, it might not be worth taking a distribution of more than $20,000 from your IRA if you can avoid it. Income over $400,000 will be taxed at the 39.6% rate rather than the 35% rate.

“Now would be the time for retirees and would-be retirees to talk with their tax professionals and financial planners to see how all of these different moving parts are going to impact their distributions going forward,” said Paré.   

personal financial planning for retirement

        First, Frank Paré, an instructor in the personal financial planning program at the University of California at Berkeley and the founder of PF Wealth Management, said most taxpayers can breathe a sigh of relief in the wake of ATRA. The vast majority of taxpayers, retired or not, will be largely unaffected by ATRA.

Most pre-retirees, for example, who are contributing to retirement accounts such as an IRA, 401(k) or a Roth IRA have little about which to worry. “Their money is still going to be tax deferred, or tax free if the Roth conditions are met,” he said. “And so they’re not going to have to worry about the recent changes.”

High-income taxpayers who are in or nearing retirement, however, ought to examine how the new tax law will affect their retirement-income plans. “What will the tax changes mean for them in terms of their distributions, the amounts and so forth?” Paré asked.   

Tax rate for retirees

     

  According to ATRA, there’s a new 39.6% tax bracket for single taxpayers with taxable income over $400,000 and married taxpayers filing jointly with taxable income over $450,000. Plus, for taxpayers in the new 39.6% tax bracket, capital gains and qualified dividends might be taxed at 20%, up from 15% in 2012. Itemized deductions are phased out for single taxpayers with adjusted gross income of more than $250,000 and married couples with adjusted gross income of more than $300,000. And the deduction for personal exemptions was reduced or eliminated for certain high-income taxpayers.

Given the new top tax rates for capital gains, dividends and other income, what are the best strategies now for saving for retirement and drawing down assets in retirement? In this edition of Retirement Adviser, MarketWatch’s Robert Powell spoke with three tax experts about retirement planning in the wake of the new tax law.

American Tax Payer Relief Act

     

  The new tax law—the American Tax Payer Relief Act of 2012—is forcing retirees to take a closer look at their tax strategies in retirement and, for some, it means big changes in how they save, invest and draw down their resources.

First, there is a new top income tax bracket and a new top rate for capital gains and dividend income for individuals, estates and trusts.

Next, itemized deductions and personal exemptions are phased out for high-income taxpayers. (There’s a broader definition of who falls into that category than applies to the new tax rates.) And finally, everyone who earns wages or has self-employment income will contribute more to Social Security through their payroll taxes.   

Lifestyle, Enhanced & Impaired Annuities

Providers will take into account your current health and medical history or you being a regular smoker and offer an enhanced annuity rate by taking into account the effect on your life expectancy. In some instances, you can receive a significant increase in income.

Your existing provider may not always consider these options, which is why it is essential to take independent financial advice when taking your pension benefits.

Qualifying conditions often include Cancer, Stroke, Heart conditions and Diabetes. With some providers, a number of more minor conditions could qualify you for an enhanced annuity rate. You do not have to be severely ill to qualify for enhanced rates and the potential to achieve enhanced rates should not be overlooked.

If you are a regular smoker or believe you may be suffering from a medical condition that could affect your life expectancy, please speak to one of our experienced advisers. You may need to complete a short medical questionnaire to allow us to investigate this area for you. This could be the most important form you ever complete.

Guaranteed Annuities

Guaranteed Fixed/Level – A guaranteed and maximised annuity income that will remain level from outset. Not protected from the future effects of inflation.

Escalating – A lower starting income than a level annuity but with a guarantee to increase at a given percentage annually. Not necessarily protected from the future effects of inflation.

Index-linked – A lower starting income than a level annuity but with a guarantee to fluctuate in line with the changes in the Retail Prices Index. Can be capped at a maximum percentage increase.
Non Guaranteed Annuities

With-Profits – Income dependent upon the performance of the underlying with-profits fund. The income can rise or fall dependent on performance on an annual basis.

Unit-linked – Income dependent upon the performance of the underlying chosen investments. The income can rise or fall dependent on performance with each payment.
Death benefits

Guarantee Period – Payments guaranteed for selected number of years regardless of survival. If you outlive the guarantee period, payments will continue until death.

Value Protection – A lump sum equal to the original purchase price less payments received to date of death is paid on death before age 75. If a joint life annuity is purchased, this would apply to the later of the two deaths before age 75.

Spouse, Civil Partner, Dependant’s Pension – An income for your spouse, civil partner or dependant payable on your death, which is equal to a chosen percentage of your income.

The Open Market Option

There are many types of annuity available on the market. We will take all these options into account when we discuss your requirements with you.

Each insurance company offers a different annuity rate. Although your existing provider may offer you an annuity income, because annuity rates differ between companies, your provider may not offer you the best income or the most suitable. Your provider will offer you the option to utilize the Open Market Option thereby allowing you to purchase your annuity with an alternative provider. It is essential that you ‘shop around’ in this way for the best annuity rate you can achieve.