Retirement:Having a Pian

There are several events in life that are important...your first job, getting married, having children, etc. However, planning for your retirement Is also extremely important and we need to make the right decisions so that we end up with what is best for us. How many of us pay enough attention to this and justifiably feel that we have provided for it?

People are living longer these days and the pressure on the Gov ernment to look after the older generation is ever increasing. If we can plan for our retirement to make us self-sufficient then the Government will welcome this. It is precisely because of this that the Government of Gibraltar allows substantial tax relief on pension contributions. The question that remains is "What kind of pension plan is right for me?"

In the private sector there are two possibilities. On the one hand, an Occupational Pension Scheme and, on the other, a Personal Pen sion Plan. Let us look at each one in turn.

Occupational Pension Scheme

Under thisscheme the employer sets up a pension arrangement for their employees. The employer contributes towards the scheme and the employee may or may not be able to also contribute depend ing on how the scheme is set up. The employer's contributions are an expense to the employer and are declared as such for lax purposes.

Any contribution made by the employee towards the Occupa tional Scheme will be considered for personal income tax relief as part of the l/6th life insurance allowance.

If the employee exceeds the life insurance allowance, the em ployee's pension contribution will not receive tax relief. Therefore Occupational Schemes are at- ever tractive where only the employer contributes or where the employee cannot afford to contribute towards a pension. Furthermore, if an em ployee already has an occupational pension scheme if he/she were to take out a Personal Pension Plan,no tax relief would be allowable on the contributions made to the Personal Pension Plan until contributions to the Occupational Pension Scheme stopped, since the tax office does not allow you to be both a member of an occupational scheme and have a personal pension plan.

Personal Pension Plan

A Personal Pension Plan is, as its name implies, a pension arrange ment for an individual. The tax benefits are extremely attractive to those employed in the private sector and there are very interest ing tax considerations for selfemployed individuals, company directors and those who receive large bonuses.Each of these would have to be studied individually as circumstances vary from person to person and company to company.

The tax relief on contributions made to a Personal Pension Plan depends on the age of the indi vidual and on their annual salary. Anyone up to 50 years of age can contribute up to 17.5% of their annual salary into a Personal Pen sion Plan and get tax relief. This percentage increases with age up to 27.5% for 61 and over.

Personal Pension Plans may be arranged in a group,so that an em ployer can provide for its employ- ees retirement. Thus it becomes an alternative to an Occupational Scheme.

Generally speaking, a Personal Pension Plan is portable and the employee can take it with him/her if they move from one employer to another. Meanwhile,Occupational Pension Scheme members may have to freeze their existing pen sion funds until retirement age if the new employer does not have a compatible scheme.

2006 Budget Statement

The Chief Minister stated in his 2006 budget speech that, at retire ment age, it is no longer a require ment to purchase an annuity and that the full lump sum of accrued monies in the pension fund can be taken tax free. However, as far as we are aware,this has not officially been legislated for as yet. Further more, anyone receiving a Pension from an occupational scheme(and we understand from comments made by the Income Tax Authori ties that this also applies to Personal Pension Plan holders) will not pay tax on pension income received after age 60. This latter concession is apparently already in place.

Conclusions

For those who are able to in the private sector,setting up a Personal Pension Plan has never been more attractive than now. The combina tion of tax relief on Personal Pen sion Plan contributions and tax relief on Life Insurance products, coupled with the fact that at retire ment/maturity the lump sums can be taken tax free, makes setting up a Personal Pension Plan imperative to all those who can afford to do so. Occupational Pension Schemes also have their place but for those who cannot afford to make the larger regular contributions required for a Personal Pension Plan.

Mario A Mosquera is a Financial Planning Consultant at Capurro Insurance & bjvestments Ltd zoho offers insurance and financial plan ning advice in Gibraltar. Capurro Insurance & hweshnents Ltd,20 Line Wall Road, Gibraltar Tel: 40850 Fax: 40851 E-mail:info@capurroinsurance. com Web:lowiv.capunvinsurance.com.

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