Pensions are once again changing. There has been many changes to pensions made in the last few years. Most of these have been aimed at increasing the tax take that the treasury can yield from pensions. One of the strategies that has been discussed is the introduction of a flat rate of pension tax relief for all.
Rather than take this very unpopular action, George Osborne has decided to reduce tax relief for those earning over £150,000 per annum. Those high earners will have their annual allowance restricted by £1 for every £2 of ‘adjusted income’ they earn over £150,000 per annum.
Those earning more than £210,000 per annum will be restricted to an annual allowance of £10,000 per annum. Where annual income is below £110,000 there is no requirement to calculate adjusted income and the normal £40,000 annual allowance will apply.
This will obviously prompt those earning in excess of £110,000 per annum to review their contribution levels (and possible take action). It may also affect active members of final salary schemes when accruing benefits.
At the same time, the pension lifetime allowance is dropping to £1 million. If no action is taken (and there is no existing protection in place), this could cost up to £137,500 in lifetime allowance charges at the point of taking benefits.
These are two areas of pensions that are becoming even more difficult for high earners to navigate. It emphasises that getting it wrong can be extremely costly, and that pensions shouldn’t be looked at in isolation when planning for retirement. If there is anyone you think might benefit from a second opinion on their pensions and overall retirement planning, please feel free to pass our details on.