The Chancellor's much publicised changes to our pensions have been widely welcomed as they make saving tax efficiently even more feasible for most UK tax-payers. After all, who can argue with the flexibility to spend your hard earned money as you see fit and to pass on your savings to your children efficiently after you have gone?
These changes have been seen as a way of encouraging the younger generation to save for their future with the government adding a very valuable tax incentive to boot. But it isn't good news for everyone.
Professional footballers rarely get much public sympathy as they are highly paid and do a 'job' that most of us can only dream of. But, whilst it is without doubt that the very top players in the Premier League earn handsomely the average incomes fall away quite quickly as you go down the league table and even more quickly in the lower leagues.
It is also worth remembering that the average playing career is short lived and many professional sports people who, in order to get to the top of their sport, have sacrificed higher education and apprenticeships to achieve their goal which means that it can often be quite difficult to find work after a career in sport. These are just two of the factors that can lead to the widely publicised post career problems of many retired footballers.
All the more important then, that they enjoy the same encouragement as the rest of us to save for their retirement. Yet, at a time when pensions are becoming more attractive, a professional footballer's opportunity to put money away is being limited to just £10,000 a year after April 2016, compared with up to £40,000 for higher rate tax payers. Whilst this till still seem high to many people it is important to remember that their ability to save after football is often severely reduced making it imperative that they save hard when they can.
At the same time as the limit on how much can be saved each year is being reduced, so too is the amount that can be held, from £1.25m to £1m in April 2016. This is a double whammy for the professional player but, right now there are some vital actions that should be taken by all footballers.
1. What have you got right now?
The first thing to do is to understand the total amount that you have in your pensions right now. This will not only include private pensions that you have but also your PFA pension. It may well be that you already have enough in your pension to get you to the lifetime limit without any more contributions. If this is the case it could free up money for other savings and investments and could save a very large tax bill in the future.
2. How much should you save?
As the limits on how much you can save are going down next April you should find out how much you can save right now. This is very much a use it or lose it opportunity.
Some players may be able to save a large amount, enough that they never need to worry about pension saving again! If you are not paying money into your pension or are only a member of the PFA pension then you should find out what your options are. The best person to speak to is your trusted financial adviser, but be sure that they are fully abreast of the changes and their impact and that they hold the necessary, up-to-date qualifications.
Now might be a good time to remind ourselves why pension saving is so valuable. Tax relief is the money added to your pension payment by the government to encourage you to save as well as the refund that you would get as a higher or top rate tax payer. For example any player earning over £3,000 per week will be paying income tax at 45%. This means that for you to get £100,000 into your pension it will cost just £55,000 as the rest comes from the government. How many other investments provide this kind of increase in contributions?
The Chancellor, George Osbourne has said that this tax relief is under review and many fear that he will scrap it altogether in the budget in March as he continues to try to bridge the gap in public finances. So anyone considering taking advantage of this valuable tax benefit should do so now to avoid the potential for disappointment in March.
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