The Budget 2016

Solomons-financial-advisor-wimbledon-blogger

The Budget 2016

There’s nothing like the Budget to divide people along political lines, I shall refrain from making political statements. All Chancellors perform a merry dance taking from one pocket to give to another, the current Chancellor is no exception (indeed there are none).

Lifetime ISA & Pensions

The stand out issues are that there has been no attack on pension tax relief, as leaked following leaked rumours that it would be. However a new Lifetime ISA looks a lot like a pension – with an effective tax relief of 20% but maintaining the ability to access the money before retirement (before 55). This is much like Individual Retirement Accounts in the US and something that many have called for over the years. The problem is simply that a pension has the advantage of being a long-term lock away pot, there for your retirement. Enabling people to access funds earlier is designed to help homebuyers. On the surface this is a good thing, in practice access to money does not deal with the problem of over-priced housing, if anything it is likely to make things worse (think about it).

That said the ISA allowance is going to rise to £20,000 – which is good news for investors seeking tax-free growth. If I were a cynic I might suggest that these two issues are connected – the prospect of a lifetime allowance for ISAs could be introduced for all. So reading between the lines, the direction of travel seems to be to have 20% tax relief, accessible funds, but restrictions on the value of the pot…. we shall see in the fullness of time.

The Chancellor also appears to have tidied up some of the older tax rules about inherited pensions. When somone dies before 75 with a pension in drawdown, there is no tax to pay by the beneficiaries, after 75 the proceeds are taxed at the recipients marginal rate of tax (which could be 0% or up to 45%).

Pension Advice

The Money Advice Service (funded by levies on financial advisers and pension companies) is to be scrapped, it isn’t working and the name itself is misleading (it’s not advice, but information). I along with many others was peeved about the advertising which suggested a return to the lie that financial advice is free – it never has been and never will be. Given that this was paid for by levy, it felt rather like the biting the hand that feeds. In any event, go-faster stripe paint at the ready… there will be changes (hmm… plenty of opportunity to get some consultants in to test new names, design a logo that will inevitably be less than satisfactory).

Employers that pay for pension advice to employees can currently claim £150 per head without it becoming a benefit in kind (and taxable on the employee) this is being raised to £500 per head. I wonder what might happen…

Capital Gains Tax

The rate of tax payable on capital gains is to be reduced to 10% and 20% (from 18% and 28%) and further suggests a more streamlined approach to taxation, where income taxes and other taxes seem to be at similar rates. I would welcome this as it moves towards a more genuine tax simplification and reduces the number of tax rates, making life easier for planning effectively. The new CGT rates come into effect from 6th April 2016… which will help those lucky enough to nurse some investment gains of late.

Personal Tax

The personal allowance is increasing to £11,000 from 6th April and to £11,500 from 6th April 2017. The amount of income you can earn before the 40% tax rate begins has also been raised. This will not help anyone earning more than £100,000 at which point the personal allowance begins to reduce by £1 for every £2 of income over £100,000.

Small Businesses

Corporation tax is due to fall further, this is a tax tool designed to help encourage enterprise and I think we all welcome actions to stop businesses legally evading tax through transfer pricing etc – the Starbucks or Google loophole looks like one that may be closing…. we shall see.

Small businesses also look set to benefit from rates being cut – which of course is very welcome, its a very odd tax. Business owners do not get to vote for their local authority unlike council taxpayers and many find the costs punitive. Most will be receiving demands this month for the next year and be very pleased at the prospect of a reduction in 12 months time (if I have correctly understood when it will be introduced).

Other stuff… the Budget will be dissected in the media, you will possibly be bored with it already. Of course its important, but the issues invariably are about attempting to make the bad news look good and the good news look “absolutely fabulous” (all Chancellors, all parties). These things tend to come out in the wash… can you remember the Budget from 2011 or 2012? probably not…

Solomons APP

All the changes will hopefully be updated on our APP by the end of the evening. Do let me know how you are getting on with the APP – its full of useful calculators and tools… but only if you use them. Its free to download and use – so do tell others. Don’t forget it works on iphone, ipad and Android.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

The Budget 2016Dominic2025-01-27T17:02:28+00:00

When in Rome

When in Rome..

I recently visited Rome for the first time. It was one of those places that I have been meaning to visit but simply had never found the time. I have always had good holidays in Italy and am happy to report that Rome more than lived up to expectations.

All roads lead to Rome

Being something of a film fan, I was keen to ensure that a few of the locations used in Roman Holiday, La Dolce Vita …were included in my visit. Having studied Latin at school (which dates me) I was also interested to see the ancient sites, many of which were part of the translation exercises that I sweated through somewhat reluctantly…. the Appian Way.

The experience of Rome reminded me of the story of the man that went to Africa and saw a huge opportunity to sell shoes, given the number of people without them. Business school suggested that this could be seen two ways – an opportunity to sell shoes or evidence that most people didn’t see the need or have the desire for them. Anecdotal observation is insufficient for making any solid business plan.

Opportunity discussion forum

Today, I might suggest opportunity of such a nature exists in Rome for driving instructors, graffiti removers and retail space designers. The driving in Rome is something to be seen to be believed. Opportunity or dead horse?

Tempus Fugit MMXVI

The Budget is now just a couple of weeks away. There is plenty of opportunity for speculation as you may have gathered. There is rumour that tax relief might be axed entirely or reduced (more likely). Supposed leaks suggest that perhaps the 25% tax-free cash lump sum will be scrapped (so some are now rushing to take theirs whilst they can). However this is in the context of the option of a pension income that is not taxed. Changes to the Lifetime Allowance, Annual Allowance and the prospect of a pension ISA.…. But by doing so, this would likely require a pre and post 2016 pension regime– just to add further complexity.

Veritas

The truth will not be known until some time after the Budget (not the Budget itself) which needs clarifying, checking and approval, is generally a promise, not a guarantee. Indeed assuming that anything that any Government says about pensions is “guaranteed” is best probably thought of only within the very short-term nature of a Government… the most obvious example being the “triple lock” guarantee for the State Pension.

Which reminds me again of Rome, and wondering how many in our political system or media would have survived the mouth of truth…. When it comes to pensions it would appear that many will simply be flung to the lions.

MouthofTruth

Dominic Thomas
Solomons IFA

When in RomeDominic2025-01-27T17:02:28+00:00

Pension Tax Relief Changes?

It would appear that further changes for pensions are likely. Pension tax relief has been “under review” which I always take to mean a report into the impact of a decision has been already made. At present whatever your rate of tax you receive as relief for any pension payment that you make.

As outlined within this blog before, in practice this costs HMRC a lot of money and is essentially a gift back to anyone that appears to be deemed as “rich” which as far as I can tell from Government and Opposition policy is anyone earning something between £50,000 and £1million as anyone with an income above £1m seems to largely avoid paying any tax her in the UK.

The expectation is that relief will be 33% so that a neat little explanation of tax relief can be spun by the media – 2 for 1… that is £2 from you £1 from the Government. Personally I fail to see how this is sensible as it’s an extra 13% for most people and a reduction of only 7%-12% for higher and additional rate taxpayers. It would be more sensible to have a standard rate of 25% which then at least correlates to the 25% tax free cash lump sum. 3 for 1 is just as simple to spin.

Constant Changes to Pensions

This comes on the back of other pension reforms

Pension freedom – abolition of any requirement to buy an annuity, retaining your pension as an investment portfolio.
Reduction in the Lifetime Allowance (£1m from 6th April 2016)
Online application for Lifetime Allowance Protection
Reduction in the Annual Allowance to £40,000
Annual Allowance tapering for those with income of £150,000+ from 6th April 2016 reducing the annual allowance to a maximum of £10,000.
Auto Enrolment or Workplace pensions
Changes to what constitutes a “year” input years are reverting to tax years.
Flat rate State Pension
Changes to the State Pension Age
Legislation to give HMRC the ability to take money from your bank account

Some of these changes are welcome, some are not, and many seem to be altered each tax year, making planning for the future somewhat awkward to say the very least.

Dominic Thomas
Solomons IFA

Pension Tax Relief Changes?Dominic2025-01-27T17:02:29+00:00

Pensions – more needless headaches the Lifetime Allowance

Pensions – more needless headaches

You may recall that Mr Osborne in his great wisdom has decided to reduced the current lifetime allowance even further, just to clarify – the Lifetime Allowance is the value of your pensions, either in payment or being built up. It currently stands at a figure of £1.25million but from 6th April 2016 will reduce to £1million.

It is very easy to calculate the value of your pensions, provided that they are purely investments pensions, such as personal pensions, SIPPs (self-invested personal pensions). You can also exclude the value of your State pension.

However, if you have an annuity in payment or old final salary pensions or perhaps simply a current final salary (or career average) pension (called a defined benefit pension scheme) such as the NHS or Teachers Pension, the sums are considerably more complex.

Long story short, once the value of your pensions has been calculated you may find that you have exceeded the lifetime allowance – which is reducing. So you will need to do something about this, which may well involve some uncomfortable decisions about future membership of pensions, even or perhaps especially, good ones, which is utterly daft.

Another bonkers pension policy

Yes, I did say bonkers. Despite what Mr Osborne may say about helping people to help themselves, he is actually restricting the amount that you can build in your own pension, actively discouraging saving, which does seem to be rather at odds with any historic Conservative policy in history, unless you count the lamentable decision by Norman Fowler to remove the rule that enabled employers to make membership of an occupational pension scheme a condition of employment, allowing the employee to contract out and not join the pension scheme. In fairness to Mr Osborne, with the benefit of hindsight, Mr Fowler probably takes the prize for arguably the most loopy pension decision for generations.

Mr Fowler was under the misguided impression that this brought about freedom for employees to decide if they really wanted to be in their employer’s pension. Mr Osborne can only be motivated by collecting more tax as there are 55% tax charges applied to amounts that exceed the lifetime allowance, unless you have the relevant protection, which is also not really guaranteed.

We are not talking about small sums of money here. So you need to gather your information, for two specific dates 5th April 2014 and 5th April 2016. This creates a headache for you, a massive task for me and in my opinion the lifetime allowance is one of the worst pension ideas in history – penalising both those that save and a successful investment strategy. This is a subject that I will return to frequently before 6th April 2016.

Dominic Thomas
Solomons IFA

Pensions – more needless headaches the Lifetime AllowanceDominic2025-01-21T15:03:49+00:00

Retiring Doctors and GPs?

Lately I have found myself between a rock and a hard place when advising my medical clients. Through no fault of their own, many long-serving Consultants are being punished due to poorly thought through rules about the Lifetime Allowance and Annual Allowance. Whilst on the one hand they are “lucky” to have large pension funds, that are by comparison “brilliant” the fault of successive Governments to fail to do their sums is hardly their fault. Indeed if ever there was an appropriate use of the term “moving the goalposts” it is surely fitting for what has happened to public sector pensions, particularly the NHS Pension Scheme, which was revised in 2008 and has now morphed into the 2015 Scheme (from the start of this month).

The changes have meant that members have to guess when they might best retire… in some specialities that is “a challenge”, most have to pay more, work longer and accrue less, whilst, (if reports are to be believed) having to cope with a greater workload, politically motivated “targets” and an under resourced organisation.

As a result of blown 2012 Fixed Protection and further reductions to the Lifetime Allowance, many of those that I work with are somewhat fed up with the powerlessness that they feel in relation to their pension rights. I cannot speak of widespread disatisfaction, but certainly those that I know within the medical community (quite a number) are “cheesed off”. The way benefits are calculated are ludicrously complicated and often mean that extra taxes are payable – through no fault of the doctor – simply by being in the scheme and having an increase in pay which is out of sync with the defined limits. I’m not talking small taxes here – but excess amounts that are deemed to have been paid as income, even though this is not the case in reality (it isn’t paid as income)…

According to the BMA, a poll of over 15,000 GP’s indicated that 34% of them expected to retire within the next 5 years. Statistics out of context can be used to support any argument, so a headline such as this one needs some unpicking.

According to the GMC, there are about 60,000 licensed doctors on the GP Register for the whole of the UK. The GP register has been around since 2006 and requires that all practicing GPs keep their license and records up to date. This figure is for the whole of the UK and does include some possible double-counting as some specialists are GPs and vice versa. In England there are 40,584 GPs and according to data published last month by the Health and Social Care Information Centre (HSCIC), for the first time there are now more practicing female GPs (20,435) than male GPs (19,801). In any event, a suvery of 15,000 is therefore a survey of about 37% of the entire workforce by headcount… which is a significant survey, one might say a very solid survey, certainly when considered as a percentage of the relevant population – unlike the current political polls or those TV adverts for women’s products that claim high rates of satisfaction (so small that it is questionable if the people conducting the survey actually left their office building)… so this survey, unlike some, is rather “worth it”. Of course, not all GPs work full-time, the figures are a headcount, not a precise allocation of full-time GPs, the full-time equivalent number of GPs is 36,920. If trainees and retainers are excluded, then the full-time equivalent is 32,628.

By way of “hard facts” here are some NHS statistics to consider, I have taken these from the HSCIC report, which frankly could make the statistics much clearer… anyway…

1,387,692 Total NHS workforce (1,187,606 FTE)

of which

701,872 are professionally qualified clinical staff (623,050 FTE)… 50.5%

42,733 Consultants (40,443 FTE)…. 3.0% of NHS staff

55,079 Hospital Doctors (53,786 FTE)…. 3.9% of NHS staff

37,078 Managers (35,164 FTE)….2.6%

36,920 General Practitioners (32,628 FTE)… 2.6%

377,191 Nurses, including GP nurses (328,577 FTE)….27.1%

The problems of staffing within GP surgeries looks set to continue and frankly, if politicians contrinue to play havoc with the pensions (Lifetime Allowance and Annual Allowance nonsense) of doctors and nurses, they may well also be considering earlier retirement. Future PM, you have been warned…

Dominic Thomas

Retiring Doctors and GPs?Dominic2025-01-27T16:12:32+00:00

The Budget 2015 – A New Mad Max

So, the Budget is already ancient history, the political hoo-hah has been left to fester, tweak and develop into an election manifesto campaign. So what, if anything grabbed my attention?

Jilted Bribe

Firstly, I have to admit that I was expecting there to be a little more of an electoral bribe. Whilst the Chancellor certainly made much of the fact that he wasn’t going to (and thus seek to be understood as prudent or sensible) the truth is that, well… he didn’t really offer a bribe (unless its one I missed). Frankly with the national purse in the shape its in, I was rather glad, (though I remain open to the possibility of solving the problems differently).

ISA with tax relief? – future implied?

That said, the first time buyer ISA does sound like a good idea. The detail needs further examination, but in essence there is 20% tax relief on the annual ISA allowance for people that are 18 or over and don’t (and have never) own a home. £3,000 of the £15,000 ISA allowance will be paid by the Government. Whilst everyone that qualifies will benefit, in practice, this will be a very good way of saving if you qualify… if not you, perhaps your children… opening up further options for more wealthy parents.

Pensions and Politicians… taking the …point?

As for pensions, I have to admit that the utter folly of politicians in relation to pensions has shifted gear over the last 10 years. Whilst knowing that we all need to save more so that there is less reliance on the State system… perhaps even the prospect of a means-tested State pension (who knows?) they are determined to punish successful investing and saving.

Here in the UK we are now restricted on how much can be paid into a pension and how much the pension fund can be worth. Utter madness. Yes £1m is a lot of money, but are we also going to cap how much can be held in a bank account or the value of property? what about the value of a business? These are measures to appear a poorly informed crowd by a poorly informed media. I would immediately abolish the Lifetime Allowance and simply restrict how much tax relief is provided on payments to pensions. It doesn’t have to be more complex than that. However we have a new maximum pot size for your pension. To say that this complicates life further for anyone in a Defined Benefit (DB) pension such as the NHS, would be a masterful understatement. Just so that we are clear… the Lifetime Allowance has reduced from £1.8m to £1.25m already and the Budget has reduced this to £1m in 12 months time. Ok, there will be some form of protection, but if recent experience is to go by, this is about as useful as pushing someone out of an aeroplane with an umbrella instead of a parachute. As for those that put a commercial property in their pension pot… good luck with that! The Annual allowance is now £40,000 a year as the maximum value of contributions to pensions, which may as well be written in algebra when attempting to calculate this for DB members.

Final note: our free APP is updated with all the changes announced for personal allowances, savings rates and so on.

Dominic Thomas

The Budget 2015 – A New Mad MaxDominic2025-01-27T17:04:13+00:00

Is the Pension Lifetime Allowance changing?

Is the Pension Lifetime Allowance changing?… again

Anyone that knows me will know that I’m not a fan of the lifetime allowance (LTA). This is essentially the Government telling us all how much we can have in a pension pot, or the equivalent of a pension pot. For the record, the LTA is now £1.25m which to many sounds like a lot of money, which it is – but so what? Sure its generally the richer people in society that are going to breach the LTA, but if you are an advocate of higher taxes for the rich, this is done through income tax, capital gains tax, dividends, stamp duty and so on. In any event, isn’t it in all our interests for us all to encourage as many people as possible to become financial independent and to have no need of State support? By the way a £50,000 pension from an employer like the NHS, Civil Service or Teachers Pension will meet the LTA, so many long-serving professionals are caught with this problem.

Huge tax penalty

The penalty for having more than the lifetime allowance is currently 55%. The LTA was £1.8m just a couple of years ago, now its £1.25m. So anyone that got caught by this change currently has an excess tax charge of £302,500. This has been an allowance that has not only failed to keep pace with inflation, but has been deliberately reduced. The rules as they stand at present punish good investment returns and prudent planning.

Scrapping the Lifetime Allowance?

So this morning’s news that the pensions Minister Steve Webb gave a speech at the Marketforce conference in which he repeated a call for a flat rate of 30% tax relief on pensions and scrapping the lifetime allowance is, in my view very good news. It encourages people to save, which when combined with the new rules being introduced for at retirement options, makes the prospect of an attractive pension system realistic. More importantly, we know that saving for our own future is important and restricting how much the fund is worth seems entirely counter-productive to me. Certainly limit any tax relief on payments into a scheme, but not what the funds can be worth… so please Me Webb, follow through on your words.

Dominic Thomas: Solomons IFA

Is the Pension Lifetime Allowance changing?Dominic2025-01-28T14:57:28+00:00

“What have I missed about auto enrolment?”

What have I missed about auto enrolment?

Yesterday I suggested that auto enrolment was not really about pensions, that’s because despite it being about setting up a pension, the real emphasis is much more about communications with staff and with Government agencies. The new system is rather like PAYE, though nothing quite as simple. I have come up with 11, that’s eleven, key issues where auto enrolment will challenge your business or charity.

Contracts of employment

Contracts of employment will need to be altered reflecting the new pension arrangements; this may be a difficult discussion depending upon your type of business and workforce. Do you need to get the help of HR or even legal advice to do this properly?

Pay reviews and salary sacrifice

Some employers may use this as an opportunity to consider “salary sacrifice” or “salary exchange” this is a bizarre scenario where having a reduced gross income with the reduction paid into a pension, saves both employer and employee national insurance contributions and PAYE, yet invariably the net pay is a bit more, with more money going into a pension. Odd but true.

Payroll integration, live and up to date

Your payroll software will need to be able to integrate the new scheme, if you are a small firm and outsource this to your book keeper or Accountant; they need to be up to speed and have software that does the job.

IT overhaul

Schemes will be managed online and the Pension Regulator may demand data going back 6 years in a format that they can readily use). This therefore has implications for your IT systems and security and in particular how you hold and backup your data about staff.

Garbage in, garbage out?

Communication with staff is also a big deal. You need to be able to evidence that you have provided all of the relevant information to your staff, email is the most obvious and cheapest delivery option, but we all know that not everyone uses email or has provided you with an up to date email address, so do you need everyone in the business to have a company email address, and what happens when they leave? Do you maintain records properly?

Money Laundering

As a pension is an investment, there are issues about possible Money Laundering and politically exposed people. As an employer do you have evidence that you have done thorough identity and residency checks? Can you prove this? This will also identify any illegal immigrants or visa’s that have expired.

Staying silent and impartial

You might see auto enrolment as a valuable part of your staff package, however some see it as another tax and a whole lot of bureaucracy. You are not permitted to give advice about pensions or entice or discourage staff from joining the scheme. This isn’t just frowned on, it carries hefty financial penalties if revealed.

Disgruntled employees

Non compliance with the rules is a dangerous approach. You may believe that you know your staff, but perhaps you should reflect on what could go wrong for you if a member of staff falls out with you, or is just plain awkward anyway (these people do exist in 2014) so make sure you have complied and that you can demonstrate that you have done so. It is pointless to ask for a bullet proof vest after the event.

Tax triggers

You may not be aware that some people have very large pension scheme benefits. The Lifetime Allowance has reduced and will reduce again in April. Some people have protected their larger allowances, but should they accidentally enrol into a new pension, this would scupper their plans. This could trigger enormous tax penalties (55% of £1m for example) and you won’t be terribly popular with the employee that is presented with such a bill because you didn’t communicate well enough.

Honest guv….

The cynic in me might suggest that this is another way to join-up the Government agencies, which is fine if you are doing everything properly (unless you have concerns about information flow) but of course will catch out more people that have undeclared earnings anywhere.

Impacting your budgeting

Finally, don’t rely on your costs being 3% of your payroll. It is likely that contributions levels will be raised above 8%, in Australia (where they have had compulsory pensions since 1992) employers now contribute 9.25%. You ought to allow funds for the scheme and your systems to be reviewed and of course you might be wise to provide seminars or meetings for your staff to ensure that they understand their pension.

So, auto enrolment is about pensions… well yes, but it is also about rather more besides.

Dominic Thomas: Solomons IFA

“What have I missed about auto enrolment?”Dominic2025-02-03T10:39:29+00:00

The Lifetime Allowance Cut

The Lifetime Allowance (LTA… nothing to do with tennis here in Wimbledon) is the amount that you are permitted to hold in all of your various pension pots unless you have Enhanced, Primary or Fixed Protection. The limit is currently £1.5m which sounds like quite a lot, but with annuities at rock bottom rates, a 4% annuity would generate a taxable income of £60,000 a year, if you take the tax free cash, then it would be £45,000 a year. Before you challenge my figures, yes this is a guide, I could almost certainly find you a better rate than 4% but just play along..

Standard Life, the rather large Scottish pension company, have suggested that the reduction in the LTA to £1.25m at the start of the next tax year (6 months time) would mean that something like 300,000 people are likely to be punished with a penalty. The penalty for exceeding the LTA is currently a 55% tax charge. Yikes! Now you can protect your existing £1.5m allowance, but with strings attached and you need to begin this process soon.

Final Salary – Final Farce

If you think that you are one of the lucky ones in a final salary pension scheme (or Defined Benefit scheme) and avoid this problem think again. Your pension is given a cash value, based upon the income and lump sum that you will get. There is a magic formula to work this out, which I shall not bother you with here, but suffice to say those with long-term service in a final salary pension scheme… say NHS, Teacher, Civil Service, BBC and who have a high final salary or expect to have promotions that trigger increased pension rights, then you are likely to be caught by this.

The Real Impact of Taxes

This was one of the previous Government’s knee-jerk reactions to the credit crunch and has made simplified pension planning about as much a reality as Utopia. However, we live with the reality of many poor political decisions and the current administration seem equally as unprepared to alter things. To do a quick bit of maths for you 55% of £250,000 is an extra tax charge of £137,500 on money that you have saved or a reduction on your pension pot of 9.1%…. yet politicians seem to fuss over 1% pension charges. Standard Life suggest that this will impact rather more people over the longer term – perhaps 10 times as many unless the rules are altered or abolished entirely. This is not a good way to encourage people to save for their retirement.

Dominic Thomas: Solomons IFA

The Lifetime Allowance CutDominic2025-02-03T14:16:28+00:00

UK Pension rules are a post-modern farce

The state of the UK pension system, supposedly one of the best in the world, is a shambles. It is high time this Government got its act together and decided that either we should all be saving and encourage us to do so, or give up. The bureaucrats at Whitehall are the only winners in the pensions mess, with endless tinkering with the rules that are gradually constricting the life out of a system that is supposed to encourage and reward savers and employers alike.

You may recall that the last Government decided to draw a line under pension rules and adopt a new approach called “pensions simplification”. Well intended it may have been, but it has been a shambles. The current administration are just as bad. Pension simplification was meant to give everyone a maximum pension fund allowance (the lifetime allowance). Not easy when you consider that a lot of pensions are not real money – a final salary scheme, such as the NHS or Civil Service are not investment based pensions, but service based. Irrespective of what the employee contributes the end result is assured based upon a proportion of final salary. For the record, this has also been messed around with. Anyhow, these schemes were given a formula. Let’s keep it simple and suppose you have built a pension of £25,000 a year and the lump sum would be 3x times this amount. The formula was 2ox pension + LS. in other words £575,000 in this instance. Then this needs to be checked against the lifetime allowance, originally £1.5m – so in this case fine. The problem comes if your pension is worth £65,000 a year – which is not unreasonable in 2013 for a Consultant with 40 years of NHS service. Those with more than £1.5m at A-Day (when the new rules came in on 6 April 2006) could protect their existing funds by applying for enhanced or primary protection, essentially agreeing not to pay more in.

The Lifetime allowance has been increased and then decreased and heading to £1.25m from 6 April 2014. The amount that you can contribute has also been restricted. Severe tax penalties apply for anything over the limit. In essence there is an incentive to restrict growth and payments. Don’t forget that “the other side” of retirement, when you actually take your pension, this is taxable income. Argh! yes there are new levels of protection too, just to meet the problems of a reducing lifetime allowance and the latest raft of rules published by HMRC are out for consultation until 2nd September. These outline two more forms of protection Individual Protection (IP14) and Fixed Protection 2014 (FP14).

All of this needs very careful advice. But just in case anyone from central or any far off field of Government is bothering to listen. Here’s a question for you. Can YOU tell me what your pension is worth today? (all of them) and can you tell me what it will be worth when you retire? can you even tell me who your pensions are with? and are you aware of the potential problems for those with “workplace pension” or “auto enrolment” for those with large pension pots? No, like most people, you attempt to understand the mass of paper that may or may not arrive each year outlining the income that you might get if XYZ does something useful with your money.

If anyone in Government had a modicum of common sense the only restriction on a pension should be the amount that can be paid in that qualifies for tax relief. That is all. Have this as a fixed percentage of income – just one level, not dozens based on your age. Make it attractive. Don’t mess with it, leave it alone. YOU will get your tax relief back anyway in the form of income tax, reduced reliance upon the state and eventually in some cases inheritance tax. Here’s my suggestion after 20+ years of dealing with pensions and handling everything from the very basic questions to the most complex. Offer tax relief of 25% at source, with no need to reclaim it. Only allow those that pay income tax to receive the tax relief and restrict the amount to 25% of taxable income (in total from employer and employee). Oh, and keep the ability to have tax free cash of 25% of the fund at retirement, but no more. It bet that in 2 days you will still be able to remember my suggested fantasy rules. As for the more complex issues – allow carry back to only the last tax year and for non earners, or non taxpayers frankly there are likely to be more pressing matters for their money and a myriad of alternative forms of saving vehicles.

I wait in anticipation of the revolution that puts investors/savers/ the UK public first…. no I am not a member of UKIP.

Dominic Thomas – Solomons IFA

UK Pension rules are a post-modern farceDominic2025-02-04T16:00:44+00:00

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