Pension Snippets

Pension Annual Allowance Cut

Government Eyes Pension Annual Allowance Cut

It is understood that the Government is considering reducing the current annual allowance of £50,000 to £40,000 or even £30,000. Do not forget that only last year this was reduced from £255,000. It is thought that this is a simpler, more practical option rather than abolishing higher-rate tax relief on pensions, which the Liberal Democrats are keen on.

Reducing the annual allowance by £10,000 would effectively cost higher-rate tax payers £4,000 in tax relief or £5,000 if paying the top rate of 50% tax.

Carry Forward Relief

Please be reminded that you have until 5th April 2012 to claim any unused pension relief against tax year 2008/09 or this will be lost for good.

Lifetime Allowance and Fixed Protection

By applying for Fixed Protection by 5th April 2012 you are able to retain the current £1.8m lifetime allowance and protect pension funds already accumulated. This must be done before the deadline by completing HMRC form APSS227 ( otherwise the revised annual allowance of £1.5m will apply.

No pension contributions may be made or benefits accrue within a pension scheme from 6th April 2012 or the protection will be lost.

This is a complex area and financial advice should be sought before proceeding and without delay!

Quantitative Easing and Annuities

The Bank of England’s strategy of ‘printing money’ (so-called quantitative easing) to help feed the economy is proving painful for people nearing retirement and contemplating purchasing an annuity.

The Bank uses the money to buy Government gilts pushing the price of gilts upwards. This has seen gilt funds produce astonishing returns over the last 3 years which clients with exposure to such funds will have enjoyed. The downside is that gilt yields have been, conversely, driven downwards such is the relationship between gilt prices and yields. The latest round of quantitative easing has just taken place which may see yields go even lower.

Unfortunately, annuities are based predominantly on such yields as well as mortality expectations, which means that levels of annuity have fallen too.

Again, this is not a straight-forward area of financial planning, so if you are considering purchasing an annuity, feel free to contact us.