Planning To take Full Advantage

Highlighting the current planning opportunities that have been produced by the need to create finance now to allow for wider investment choice in the new pensions regime.

One of the major focus points of the new pensions regime is the potential for a wider investment choice as part of any clients' intended retirement portfolio.
Particular areas of opportunity are:

• Investment in residential property

• Investment is overseas property

• The relaxation of the 'connected party transaction restrictions' currently imposed on asset purchase for both SSAS and SIPP arrangements

These issues have undoubtedly raised client interest in the future use of both existing pension funds and the possible attraction of new funding, post A-Day, using the new annual allowance rules.

In many cases there will be a need to raise finance for the intended purchase. This is where awareness of the changes in borrowing rules from 6 April next year become vital in forward planning.

The new regime will impose a borrowing restriction of 50% of the net value of the pension fund - leaving clients with a planning dilemma.

The may wish to purchase assets in the new regime, but to do so, will need to achieve the necessary balance between their pension fund value and the borrowing they will be able to generate. The changes to borrowing rules will, for many, require significant additional input to private pension provision to achieve their desired investment objectives.

Broadly speaking this will help the Government's intention to encourage private retirement provision. However, the changes will also provide financial advisers with pre-A-Day opportunities to assist clients with these planning opportunities. This could be by maximising current pre A-Day funding opportunities in order to increase immediate funds - whilst still leaving the 2006/7 annual allowance available as a top-up facility.

An increase in immediate funds could be achieved by using the carry back option for 2004/5 personal pensions and this year's maximum basis year contribution. the former will have to be completed by 31 January next year.

Alternatively, for clients with retirement annuity contracts, the availability of the carry back and six-year carry forward rules until the end of the current tax year may allow a larger contribution to be made now through corresponding increased tax relief than would be available with direct personal pension funding.

For directors, the use of a corporate pension arrangement prior to A-Day will create higher levels of contribution than by direct funding of personal pensions. these funds can, beyond A-Day, be consolidated into a personal pension wrapper or (if within the current Appendix 11 valuation test) be transferred to such wrappers beforehand.

By taking such action now, clients may be able to purchase new commercial property under the current more flexible borrowing rules. Although, to allow this, the purchase must be completed by 5 April 2006.

Time is running out to take advantage of such planning opportunities. Professional connections will be a prime target base - where advice regarding there changes will be essential.