Sound Financial Group Blog
Latest opinion and views on whats happening in the world of financial planning, wealth management and independent financial advice. Please feel free to leave your comments or start a discussion. Please note: all comments and discussions will be moderated prior to publishing.
More pension tax charges on the horizon. High earners need to act before April to prevent additional tax charges applying to their pension funds...
With all the recent pension problems and changes you may have missed the hidden gem that is set to emerge from next April (2012). The lifetime limit for pension funds is being reduced from £1.8M to £1.5M.
This may seem like a very large number to many of us and one that doesn’t concern you as many people have funds way below this level. The questions to ask however is could my funds be worth more than this at a future date, or are they already?
Deciding on whether you might be affected by the changes may not be easy, especially for those in finaI salary schemes that are likely to provide pensions of £75,000 pa or more, or lower pensions with additional cash lump sums. If you have multiple schemes these need to be amalgamated to test against the limits and to calculate any tax charge and this includes AVCs and benefits where you may have contracted out of SERPS.
With money purchase/investment linked schemes it is easier to calculate how close you may already be to the limits, however for many they may not breach them for many years and may fail to recognize the fact. For example, if you have a fund of £400,000 today and pay in an extra £1,000 pm for the next 20 years you could be close to the limit, subject to future growth and possible changes to the limit.
If you breach the limit then you may be in for a big surprise given that HMRC are likely to charge you between 25% and 55% depending on how you take benefits from your funds. However all is not lost as with careful planning such tax charges can be avoided, but given the complex nature of the calculations and pensions in general we would urge you, if you believe that you may be affected, to act now, or live to regret it.
If you have a technical pensions query or would just like a second opinion on your current arrangements, please contact us and take advantage of a no cost/obligation meeting.
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Christopher Martin Road
Basildon
Essex SS14 3EZ
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