The Best Retirement Plan Options For High-Income Earners

The rules about pension schemes have been changing over the years. In an as dynamic environment as the one we currently live in, it becomes all the more important to understand and plan your retirement lives wisely.

The pension rules can be highly complex, especially for high-income earners. However, there are various tax-efficient options that can be understood through wealth advisors. And if you do not wish to get in touch with a wealth advisor just yet, don’t worry as we bring you the best retirement plan options, summarised & explained –

1. ISAs: 

ISAs are retirement plan options that are extremely popular and has excellent success rates. There are more than 1,000 ISA millionaires in the UK already, and the numbers are only increasing. Through an ISA, you place a portion of your income in a tax-free wrapper.  

The compounding effect plus the growing market helps in adding to this account. Slowly and gradually, as you reach your retirement stage, the accumulated sum makes a massive difference in your post-retirement life. People with high income can utilise this opportunity by sparing £20,000-£40,000 or more every year and putting them in their ISA accounts for higher monetary growth prospects.

 

2. Venture Capital Investments: 

Particularly famous in the UK, venture capital investments are soaring as the UK becomes a place of growing businesses. Several venture capital trusts are listed in the London Stock Exchange, hosted by fund managers investing in smaller companies listed in the submarket of LSE. Both enterprise investment schemes and VCTs are tax relief investment policies but involve high risk. However, high-income earners can follow these investment opportunities since they have the leverage to take the risk.

3. Spread/Divide Investments Between Partners/Spouses: 

It only makes sense to put some portion of your investment capital under your spouse’s name or in their account. It allows the two of you to take advantage of your respective tax positions through tax benefits and redemptions. The allowances also help boost your net position, and divided investments bring in more durability, scalability, and growth of the invested amount in future.

4. Family Investment Companies: 

A family investment company, as the name suggests, is a limited company with family members as the shareholders. The founder funds it through a loan, which is a tax-efficient way of investing money in something that belongs to the family. Whatever income the company generates is subject to a 19% corporation tax (when we typically talk about The United Kingdom), and shareholders are only liable to pay taxes when there is an income distribution within the company. 

However, this is one of the most complex investment planning schemes for retirement savings and requires the guidance of a wealth planning specialist that also provides tax advice. Undoubtedly, it is advantageous for high-income earners to consider due to the constant and uninterrupted flow of income.

5. Offshore Bonds: 

Now, this is a relatively new concept to people but is on the rise as well. Offshore bonds come under tax-efficient investment wrappers given by a life insurance company with a favourable tax regime. It is a helpful way for British expats to top up retirement savings since the bond is not subject to UK taxes. 

There are some foreign taxes deducted at the source. It also allows you to withdraw up to 5% of the original investment every year, for 20 years, without any income tax liability. When unused, it carries forward to the following year. In exceptional cases, surrendering offshore bond policies can also be easy. You can choose the most suitable time to do to manage the level of tax you eventually pay. Alternatively, you can assign segments of the bond under your family members’ names that promote estate planning.

6. Health Savings Account: 

Such an account is a savings-cum-investment account giving you a total of 3 tax breaks. It acts as a tax-advantaged emergency fund for healthcare expenses, and you must have a high deductible health plan to be eligible for this option. 

It is tax-free growth and can be used for medical purposes whenever you need it in the future. In the long run, it acts like a mutual fund since it allows you to invest money into mutual funds inside the HAS, letting your account grow big if you invest wisely. The average retiring couple can rack high healthcare expenses, and this scheme is the perfect fit to cover all of them seamlessly.

Conclusion: 

It does not really matter if you are a high-income earner or a low-income earner; everybody should have retirement plan options ready for the day when they finally exit the job market. It is imperative that you talk with your investment professional before you choose a plan from the options mentioned above, as they are the best people to determine plans based on your income and long-term goals. 

They know all the rules and regulations mandatory to enter into these retirement plan options, but since the final decision maker is you, it is essential that you understand these plans as well. Our list of 6 exceptional retirement plan options helps you critically analyse, understand and choose the best retirement option(s) for you that will help you sail through your post-retirement life without any hurdles!