Whilst many professionals such as lawyers and accountants have excellent financial knowledge and experience, many can be guilty of neglecting their own personal finances due to lack of time.
Personal finance management is crucial at any time of your life. This is perhaps the reason why many businesses are offering their staff financial education and wellbeing seminars or webinars. However, this only goes a short way to bridging the gap between information and financial advice. Some professionals may feel they don’t need financial advice, but when was the last time you looked at your workplace pension?
Pension contribution benefits
Most employees are auto-enrolled into a workplace pension scheme, which, at the minimum, pays 8% of salary (employee and employer contributions) in any one year. However, for those on high incomes, which is prevalent in professional services, making additional pension contributions can be an excellent tax saver for both employers and employees.
Owner-managed businesses can make pension contributions above the usual restrictions of net relevant earnings, subject only to the “wholly and exclusively” rule. Making pension contributions in this way also has the added benefit of reducing taxable profits for Corporation Tax purposes.
For those who earn more than £50,000 and have children, making pension contributions can restore some or all of your Child Benefit payment by avoiding the High Income Child Benefit Charge. Another common situation for higher-rate taxpayers with income above £125,140 is the withdrawal of the personal allowance, while those with income between £100,000 and £125,140 see their personal allowance reduce by £1 for every £2 over £100,000, meaning the effective rate of tax is 60% - and that making additional pension contributions can be pivotal in restoring personal allowance!
Reviewing your pension arrangements and ensuring they are taking on an appropriate level of risk, especially with recent market volatility is also more important now than ever. With most individuals having switched employers several times, you may have multiple schemes that should be reviewed.
Don’t delay your financial planning
Pension planning, however, is not the only reason to contact an Independent Financial Adviser.
You could have a mortgage, and with that some element of life protection, but is it enough? You may only have life assurance which covers in the event of death but will not pay out upon diagnosis of a critical illness or being unable to work.
We often find there is a tendency to delay financial planning to the later stages of working life, and at this point, financial planning strategies could be limited.
Many professionals could progress to partner level and with this brings the possibility of an even higher income. For those in receipt of income above £260,000, you will be restricted in the amount you can place into a pension. This can taper down to as low as £10,000. With this in mind, maximising pension provision in the early years, while you still can, is even better.
Getting financial advice as early and regularly as possible so that you can react when things go wrong (or right), is crucial. Ongoing advice can be just as important to ensure your financial plans remain on track.
For more information and independent personal finance advice, tailored to your own circumstances, please get in touch. Call 0808 144 5575 or email help@armstrongwatson.co.uk
