In this article, brought to you by Beavis Morgan accountants, tax and business advisers, we discuss potential changes to pension tax relief in the Budget, the new restriction for those in pension drawdown, as well as increased contributions for workplace pensions in 2018.
Changes to pension tax relief in the Budget?
There is again speculation about further restrictions to tax relief on pensions in the Chancellor’s Autumn Budget. With the Chancellor looking to increase tax revenues without increasing tax rates, a raid on pension savings is an easy target as the cost of pension tax relief is estimated to be in excess of £35 billion a year.
Currently individuals can generally obtain tax relief at their marginal tax rate on up to £40,000 each tax year. Thus, for a higher rate taxpayer, a £10,000 gross pension investment costs only £6,000 after tax relief.
Consider increasing your pension savings just in case.
New restriction for those in pension drawdown
One of the measures affecting pensions announced in the Spring 2017 Budget that was not included in the first Finance Act, concerns a new £4,000 pension input limit for those who are drawing income from their money purchase pension fund.
The new flexible drawdown rules introduced from 6 April 2015 has allowed those with money purchase schemes such as Self Invested Personal Pension schemes (SIPPs) to draw as much or as little as they wish each year. Other than the 25 per cent tax free lump sum, the amounts withdrawn are taxed as income on the Individual.
The new £4,000 (previously £10,000) annual limit in the latest Finance Bill is intended to be an anti-avoidance measure to deter pension “recycling” where the amounts withdrawn are reinvested in the pension scheme to obtain further tax relief.
Increased contributions for workplace pensions in 2018
Auto-enrolment of staff in workplace pension schemes now applies to even the smallest of employers, although there are exclusions. The current minimum contributions are 1 per cent from the employer and 1 per cent from the employee but these limits are scheduled to increase to 2 per cent and 3 per cent respectively from 6 April 2018.
The contributions will then increase to 3 per cent from the employer and 5 per cent from the employee from 6 April 2019. Employees will have a further opportunity to opt out of auto-enrolment.
For further information, speak to a Beavis Morgan adviser who will ask the right questions relating to your individual situation, review your property assets, give practical advice on the best approach towards planning for retirement and mitigating inheritance tax and, if necessary, introduce you to an Independent Financial Adviser who will assess your situation and inform you of the pension protections best suited to you.
To find out more, contact Steve Govey or your usual Beavis Morgan Partner.