Retirement options for high income earners

In this world of ours very little stands still. The same can be said for the pensions landscape, as rule changes over the years have made retirement options for high income earners harder and harder to navigate.

High earners are faced with even more restrictions and potential pitfalls, making it vital to understand the rules and seek specialist wealth planning advice. Calculating your ‘adjusted income’ for example, can be complicated but your wealth adviser can do this for you. You could also be affected by the lifetime allowance (currently capped at £1,073,100), the annual allowance (currently capped at £40,000) and the tapered annual allowance (which can reduce to just £4,000 for individuals with ‘adjusted income’ over £312,000).

Luckily, there are tax-efficient options available to high earners wanting to save for retirement.

ISAs
Since their launch, ISAs have been a phenomenal success story. A few years ago, research identified more than 1,000 ISA millionaires in the UK, and this number has certainly expanded since. ISAs allow you to place £20,000 each year in a tax-free wrapper, and the compounding effect plus a supportive market over time can make a real difference.

Spreading investments between spouses
Putting a portion of your investment capital in your spouse’s name makes a lot of sense. It allows each of you to take advantage of your respective tax positions and allowances and could boost your net position.

Offshore bonds
An ‘offshore bond’ is a tax-efficient investment wrapper set up by a life insurance company in a jurisdiction with a favourable tax regime, such as the Isle of Man or Dublin. Because any growth in the investments held within the bond is not subject to UK tax, it can be a useful way to top up retirement savings, although foreign taxes may be deducted at source. 

It is possible to withdraw up to 5% of your original investment each year for 20 years without incurring an immediate income tax liability. If the 5% allowance is not used in a given policy year, the unused allowance carries forward to the next policy year on a cumulative basis. This enables you to select the most opportune time to incur a tax charge.

If you have a higher income, multiple or large pension pots or more complex requirements, retirement planning can be complicated – and there are many rules just waiting to trip you up. If you’d like to ensure you are making the most of pension allowances and consider alternative ways to save for your future, our wealth planning team is here to help.

By Philip Harper  |  October 2021