The Chancellor’s recent Autumn Statement brought us yet more changes to the tax treatment of registered pension schemes and in general George Osborne’s proposals reduce the tax advantages of registered pensions. However, there still remains ample opportunity for the vast majority of us to take advantage of the current regime and the new proposed regime.
In summary the main changes announced were:
- Annual tax relievable contribution allowance to be reduced from £50,000 to £40,000 from tax year 2014/15.
- The lifetime allowance (total value of tax advantaged pension you can accumulate) to be reduced from £1.5m to £1.25m from 2014/15
- Re-introduction of fixed protection to protect against this lifetime allowance reduction.
- A possible personalised protection against the lifetime allowance charge to be considered, although details of how this would work are under consultation.
- Re-instating of the maximum capped drawdown income to 120% of the relevant Government Actuaries Department annuity rate.
Swindells Financial Planning offers expert and trusted independent financial advice to our clients in Seaford, Uckfield, Brighton and across Sussex. We believe these announcements provide opportunity to make significant pension and retirement planning decisions and highlight some of these below.
The reduction in the annual allowance was expected but does not apply until the 2014/15 tax year. The ability to still carry forward unused annual allowance of up to £50,000 for each of three preceding tax years allows some scope for maximising pension contributions now.
Once introduced the new limit is likely to be particularly onerous on members of final salary schemes with long past service. Advice should be sought where increases to pension contributions, perhaps due to pay rises, may mean the annual allowance is exceeded resulting in a charge.
On the other hand it gives higher earners the chance to maximise contributions before the reduction in the allowance comes into force. And for the very high earners, if action is taken before the end of this tax year, you may be able to secure 50% tax relief.
The changes to the lifetime allowance means that any at or near the current limit of £1.5m and looking to retire in the near future will need to consider all means to avoid a possible lifetime allowance charge.
This could include:
– Electing for fixed protection and/or some form of personalised protection if this becomes available.
– Considering drawing some benefits before the limit is reduced to take advantage of the current higher lifetime allowance limit.
The increase in the maximum capped drawdown income will be welcomed by many who have seen their drawdown incomes reduce in recent years although it is unclear when the increase will take effect. It is understood that HMRC will be consulting with providers as to how soon the change can be accommodated and it seems that 6 April 2013 is a possible commencement date for this.