Just when we were all getting used to the new pension changes that came into force in April, the Chancellor, George Osborne, announced further measures and reforms in his Summer Budget
NEW CEILING FOR THE ANNUAL ALLOWANCE
With effect from April 2016, those with a net income of more than £110,000 could see the annual amount they can contribute to their pension that attracts tax relief reduced from the current annual limit of £40,000 tapering away to £10,000. Those with income, excluding pension contributions, above £110,000 will need to add on their own and their employer’s pension contributions. If this gives a figure in excess of £150,000 their annual allowance will be restricted by £1 for every £2 by which their income exceeds the threshold.
REDUCTION IN THE LIFETIME ALLOWANCE
The Lifetime Allowance is a limit on the amount of pension benefit that can be drawn from pension schemes (either in the form of a lump sum or a retirement income) without triggering an extra tax charge. The figure for tax year
2015-16 is £1.25m. From April 2016, the maximum amount that pension savers will be able to draw from their pensions without paying extra tax will reduce to £1m. From 6th April 2018, the allowance will be adjusted in line with the Consumer Prices Index. Transitional protection will be introduced for those who have been saving with the current £1.25 million threshold in mind.
SELLING AN ANNUITY
The Chancellor announced in his March Budget that pensioners who had used their pension savings to buy annuities would be able to sell them for a cash sum from April 2016 if they chose to. However, this has now been postponed until 2017 to allow more time for the necessary administration procedures to be put in place.
PROPOSALS ON FURTHER TAX CHANGES
The favourable tax treatment of pension contributions has long been viewed as a major incentive to save for retirement. The Chancellor has decided to explore further possibilities intended to make the taxation of pensions clearer and more transparent. Announcing a Green Paper entitled ‘Strengthening the incentive to save: a consultation on pensions tax relief’, he proposed an overhaul of the current system. Pensions, he said, could be treated like Individual Savings Accounts (ISAs) for tax purposes. This review will consider whether the present system that sees pension contributions receivingtax relief, funds being exempt from tax while invested and taxed when paid out, could be overhauled. This could, for instance, be replaced by a system where contributions don’t receive tax relief, but are tax exempt while invested and tax exempt when paid out.
The government’s consultation closed on 30th September and the ensuing report will no
doubt make interesting reading.
Professional advice is essential
When it comes to looking after our retirement planning and investments, vigilance and professional advice are essential. If you are wondering what to do, contact Robert Bruce Associates for individual assistance.
NOTHING IN THIS ARTICLE SHOULD BE SEEN AS GIVING INDIVIDUAL FINANCIAL ADVICE.