MPs pushing for More Pension Smoke and Mirrors

2011: The Sunset Limited – Lee Jones
Financial Planners remain unimpressed with moves to further restrict pensions. As I blogged on Monday, the Chancellor is being petitioned by various MPs to reduce the annual allowance from £50,000 to a lower sum both £30,000 and £45,000 have been mentioned.  Don’t forget that the annual allowance was £255,000 and was reduced to £50,000 from April 6th 2011. So dramatic actions are now a precedent. The amount of tax saved in not providing tax relief, can be used to justify raising the personal allowance to £10,000. This is decidedly bad news for pensions as I outlined in my piece on Monday “Pensions and the Muppet Show“. This is more of the same. However examined, this is not about saving tax, it is about appearing to do so. It is all to do with appearing to help lower income earners. The personal allowance has been raised, true – for everyone, true, but higher rate taxpayers have not benefited as the amount of earnings required before a 40% tax rate applies has been reduced. Anyone earning £100,000 or more can see their personal allowance completely removed and those with incomes over £150,000 pay 50% tax as it is.
What the politicians have not thought about is that Occupational Pension Schemes – in particular final salary schemes do not apply the actual amount contributed towards the pension as part of the annual allowance. Indeed the rather daft calculation involves working out how much the pension has increased, making an adjustment for inflation and then multiplying by a factor of 16 to calculate the element of the annual allowance used. This makes planning very difficult as most Final Salary Schemes are not geared up to provide the information in time for tax year end deadlines. Further messing around just makes things harder and ends up making additional work accounting for things rather than doing anything productive. I hope that George Osbourne will see sense and not introduce further restrictions on pensions. If he wants to make changes, my suggestion would be to scrap the lifetime allowance and restrict tax relief to 20% of all contributions, irrespective of earnings. This would at least make funding a pension a worthwhile exercise.
In the meantime, expect the media to be full of articles this weekend about ending higher rate relief or the annual allowance being reduced. Pension companies will be quick to point out that if you have money for investment, now is the time to act, use the allowance now before it gets removed (before 5th April 2012 presumably). Nothing quite like a fire sale and I’ve known this industry to create a few and invariably nothing changes. However, this time the current general antagonism towards those with large incomes despite the economic recession, is holding court with politicians who seem to be very concerned about appearances. 
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
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MPs pushing for More Pension Smoke and Mirrors2017-01-06T14:40:08+00:00

Pensions and The Muppet Show

2012: The Muppets – James Bobin
Financial planning done well means that a client will be financially independent and not reliant upon the State. This means setting aside income in a thoughtful way so that when earnings cease or reduce, there are sufficient funds to provide an ongoing sustainable resource.This often involves taking full advantage of inducements to save where appropriate.
Pensions have been a political football for many years. Rules about them have never been terribly well thought through, indeed some of them can only be described as idiotic. As pensions receive tax relief they are an attractive way to invest. However, the tax relief is the only attraction about them. The previous Government introduced us to pensions simplification, which frankly was anything but simple. The way pensions operate (largely) is becoming increasingly daft – investors are restricted on the amount that they can contribute, the amount of tax relief, the size of the fund and the amount they take out and the amount that can be passed on. The auto-enrolment regime will also provide another raft of rules. This is a mess.
From April 6th 2012 the lifetime allowance (the amount that can be held in pension funds without being subject to extra tax charges) will reduce from £1.8m to £1.5m. The amount that one can contribute has already been restricted to £50,000 and how contributions are calculated for final salary scheme members (those few that remain) are also made more awkward.
Enter Danny Alexander MP, interviewed in The Telegraph is attempting to propose restricting higher rate tax relief further still and seems keen to make it very difficult for anyone earning over £100,000 to receive tax relief. Many words come to mind, but wisdom is not one of them. This is the time when backbenchers will be making their petitions to the Chancellor ahead of his Budget in March. Whilst many (the majority of the population) do not earn £100,000 and few invest £50,000 a year towards pensions, many do pay higher rate tax. The sad reality is that for anyone earning over £80,000 a year, to maintain their standard of living in retirement considerable sums need to be saved.  Suppose they require an income of £40,000 – a pension fund of £1m will be required in all probability – which clearly needs a lot of money put into the pot plus growth to get there. Yes, I know that for some people a £40,000 a year pension is very nice thank you very much, but remember that this is about creating people that are not dependant upon the State so that State taxes can be used to fund our welfare system, economic structure and so on. The Welfare State should not be shaped by those green with envy (and no I’m not referring to Kermit). Hopefully a modicum of common sense will prevail and pensions will not lose higher rate relief unless other restrictions are lifted (contribution levels, lifetime allowance), otherwise there will be little incentive to save or use pensions, which is hardly the message to be sending out prior to introducing auto-enrolment. I know the Muppet movie was released here on Friday, but one begins to wonder if they might be running a different show, though if the real Muppets were running things, I’m sure it would be an awful lot more amusing and at least we would be smiling.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
Pensions and The Muppet Show2017-01-06T14:40:09+00:00

Tax Deadline Looming – Check P800 Forms

1954: An Inspector Calls – Hamilton
It is important that you check tax documentation. A key date in the tax diary is nearly upon us (31st January) and it is hard to avoid the HMRC advertising in London. However, just because you have a document from HMRC that says this is what you owe, it is worthwhile checking as often the tax inspector estimates tax. This is particularly so for a P800 form. The form is the HMRC view about whether you have underpaid or overpaid your taxes. Remember that under self-assessment rules you are personally responsible for the accurate reporting of your tax to HMRC.  
Time is running out, but in order to prepare for each tax year you should obtain your P60 and ideally all payslips for the relevant tax year. Certificates or statements from your bank showing any interest paid and probably taxed on interest. You will also need dividend information, these form part of your income. You should also have details of any pension contributions that you made and any charitable donations. There are many other elements too – but this will depend on the nature of your investments.
I do not submit tax returns, but clearly all financial advisers have a pretty good understanding of the tax system (and have usually have qualifications for this). We ask for this sort of information so that we can get our records as accurate as possible for clients and remember that your tax position may significantly effect how your financial planning is put together and the order in which tasks are performed. Getting accurate from you information is vital. 
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
Tax Deadline Looming – Check P800 Forms2023-12-01T12:48:06+00:00

Rumour Mill – Attack on Tax Free Cash and Tax Relief?

1941: Nothing But The Truth –  Nugent
In one of the quality industry papers today I have read that the Government had considered announcing an end to higher rate tax relief on pensions in the Autumn Statement this week. However, it is alleged that the Chancellor decided against it, but is rumoured to be seriously considering this for the Budget. The Government is quoted as saying “The Government is committed to providing clear incentives to save in a pension, up to generous allowances, and has no current plans to restrict tax relief on pension contributions or to cap relief on the tax-free lump sum.”
So I guess who you believe is rather central to how to act on this “information”. Wouldn’t it be great just to have some rules that actually last and aren’t constantly amended? rather than everyone having to guess what might happen next.
For the record, in the current tax year 2011/12 the Annual Allowance is capped at £50,000 and the Lifetime Allowance is £1.8m. This will be reduced to £1.5m from 6th April 2012.
We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting
Rumour Mill – Attack on Tax Free Cash and Tax Relief?2023-12-01T12:48:30+00:00
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