Posted on 1st June

Simon Daykin discusses the 'value of financial planning' in his latest Northern Insight column.


Financial planning is proven to have a wide range of benefits for those who use it. The advantages gained through the psychological coaching elements of holistic planning are in essence intangible, so sometimes difficult to quantify into pounds and pence. However, the tax efficiencies of using experts are not. For example:

1.      Tax Relief on Pensions:

The government has long encouraged saving for retirement via a variety of tax reliefs on pension contributions. Generally, people will gain more in tax relief when paying into a pension, than the tax they will pay when taking money from the pension in later life. This is certainly true for those who are advised by planners. Amazingly, the tax reliefs can be as much as 60% on contributions for some individuals.

In addition, people are living longer, the chances of reaching 75 are higher now than ever before. This is important as the death benefit tax treatment of a pension changes significantly after age 75.

2.      At least £32,500 of Tax-Free Income with Financial Planning

By effectively utilising a range of investment types and wrappers, coupled with holistic financial planning, it is possible for an individual to draw up to £32,500 income per year without paying any tax (in the current tax year). The knock-on effect of this could be ensuring that your savings last longer through retirement, or that you can retire earlier than originally thought possible.

3.      Claiming the Marriage Allowance

This simple tax reducer allows (under certain circumstances) the transfer of an extra £1,250 of personal allowance (current tax year) from a lower earner to their partner. Furthermore, for those couples in retirement with a DC pension income skewed in the favour of one person, this can have an additional benefit where phasing of tax-free cash is planned.

4.      Avoid Triggering the Money Purchase Annual Allowance (MPAA)

Triggering the MPAA means that you are severely restricted in how much you can contribute to a pension in the future. It is triggered by withdrawing money from a pension in certain ways.

Many individuals, particularly business owners/self-employed, have fluctuating cashflows which means they may need to dip into their pensions before adding to them again in later years.

By careful planning, you can withdraw money from a pension and not trigger the MPAA. Following this route will allow you to benefit fully from the pension tax reliefs available and maximise your pension contributions.

The purpose of this article is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice. The value of investments can go down as well as up and you may not get back the full amount you invested.