The latest changes to drawdown pensions have been warmly welcomed and are available to those aged 55 or over wishing to access their pension funds.
With less than three months of the current tax year remaining, there are a number of incoming changes which should be considered if you have a high income or substantial pension funds.
Failure to take full advantage before the changes occur on 5 April 2016 could be costly.
For instance, those with total income above £150,000 (this includes P11D benefits and employer pension contributions, not just wages) face tapering of their pension contribution tax relief; potentially limiting the annual contribution allowance to only £10,000. If you enjoy this level of income and make pension contributions, you should make sure you are not overfunding. This would lead to a tax charge – even if contributions are paid by your employer; and it also applies to final salary schemes.
If you already have substantial pension assets, you should be aware that the Lifetime Allowance reduces from £1.25 million to £1 million from April 2016. There are protection schemes in place allowing a higher allowance to be retained, but these come with rigid conditions which, if not fully followed, can lead to protection being lost.
More positively, if you are fortunate enough to have made a full annual allowance contribution of £40,000 prior to 8 July 2015, you have a one-off opportunity to contribute a further £40,000 before the end of the current tax year. This results from transitional arrangements contained in the Budget. This could be attractive if you will lose the standard annual allowance from 2016 onwards, or if you wish to use the lifetime allowance protection schemes and therefore will be unable to contribute in the future.
The last few years have witnessed a huge range of changes in the pension landscape. Some of these are advantageous to savers and pensioners, others not so.
Further changes are anticipated; the removal or limitation of higher rate tax relief being an obvious target for a Government looking for ways to raise taxes and reduce spending. Trying to make solid plans on such treacherous and shifting ground can be perilous.
CBW’s Financial Planners are pensions experts. We can explain the effects of the changes to you and make sure any decisions made are the most appropriate and suitable to your overall financial situation.
If you have any questions regarding this article or another matter, please don’t hesitate to contact the author as below.