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20/20
MONEY MATTERS
Inflexible Pensions?
“I’VE ALWAYS UNDERSTOOD PENSIONS TO BE VERY INFLEXIBLE,
by Steve Warner
ALLOWING ME LIMITED CONTROL AND ULTIMATELY PROVIDING
MANAGING DIRECTOR,
Rossborough Financial Services Limited
LITTLE OR NO VALUE TO MY ESTATE. IS THIS STILL THE CASE?”
In short no - at the beginning of the year I wrote an article on - Where appropriate you can consolidate pension benefits
important changes to Jersey’s pension legislation which in accumulated in various plans, both occupational and
January this year introduced the concept of Personal Pension personal, into a single PPT.
Trusts, these changes are so revolutionary that they are - Withdraw a proportion of your fund as a tax free lump sum
fundamentally changing the basis of pre and post retirement with the option to defer drawing a pension allowing the
planning in Jersey. balance of your fund to remain invested to benefit from
future growth. This is ideal for those who want to utilise
Whatever your view on the use of pensions as a means of their tax free lump sum, perhaps to repay their mortgage
funding for retirement I would urge you to familiarise yourself but wish to continue working, possibly beyond their normal
with the key features and benefits associated with Personal retirement age and do not immediately require income from
Pension Trusts as these arrangements have significantly their pension.
enhanced the appeal of pension as a tax efficient means of - The ability to retain control of your pension fund
accumulating wealth. throughout retirement and draw an income (known as an
‘Annuity Equivalent Income’) directly from your PPT may
You now have more control over the investment of your be of particular interest to those who:
pension funds, and much greater flexibility in how and when • Question the value of traditional annuities as they
you access your pension fund at retirement. Perhaps for many become more expensive.
one of the most important benefits is the ability to retain • Want the flexibility to change the level of income they
ownership of their pension fund in retirement and ultimately draw from their pension fund.
the freedom to pass the balance of their fund to their • Want to defer drawing an income until they are older
beneficiaries on death. when annuity rates may have improved due to the
effect of ‘mortality drag’.
What is a Personal Pension Trust? - For those who question their own mortality the most
A Jersey Personal Pension Trust (PPT) is a trust-based, significant benefit of a PPT’s is succession planning with
personal pension plan. The structure allows you to make the ability to pass the balance of the fund to your spouse
provision for your retirement and, at any time after the age of or your estate upon your death.
50, pay yourself a tax-free lump sum and draw a variable
income directly from the trust. Your surviving spouse can either take your inherited pension
benefits as a lump sum (less income tax at half the standard rate)
In addition to income tax relief on pension contributions and or continue to draw a retirement income for the rest of their life.
the preferential tax treatment of the underlying funds the
additional benefits of PPT’s include: The review of Jersey’s pension regulations by the Pensions
Working Party continued into 2008 culminating in further
Pre Retirement proposals to increase the flexibility and choice in pension
- Access to leading investment managers and top-performing provision. These further changes are detailed in the Minister
investment funds. for Treasury & Resources draft Budget Statement 2009 &
- Transparent and often lower charging structure compared include:
to the traditional insurance based personal pension plans. - Increasing the maximum tax-free lump sum which can be
- Option to make regular or single contributions and flexibility commuted at retirement from 25% to 30%.
to reduce, suspend or even cease contributions without
penalty as circumstances dictate. - A significant increase in the annual pension contribution
- Ability to retain your PPT throughout your career and limits.
maintain pension contributions. Continuity of pension
contributions is important as it has a significant impact on - Recognising employer contributions to personal pension
the size of your pension fund and ultimately the value of arrangements thereby simplifying the provision of employer
your benefits in retirement. sponsored pension plans.
Post Retirement For more information on these revolutionary changes in Jersey’s
It is at retirement that the flexibility and options introduced by pension legislation and what this means for you please contact
the changes to our pension legislation really comes to the fore: Steve Warner at Rossborough Financial Services Limited.
Steve Warner was a founder member of the Pension’s Working Party set up to review Jersey’s pension legislation.
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