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pension changes and updates / HMRC
In the mid 1990's the then Inland
Revenue (now HMRC) introduced a new term that they found unacceptable. This was
called 'Cascading'. Cascading was the process of drawing pension benefits and
tax free cash and re-investing the tax free cash into another pension to claim
further pension tax relief. In effect, using tax free money to claim tax relief
through recycling. The authorities made it very clear that they would be
looking out for such manoeuvres and now, when claiming benefits with most
providers, there is a declaration to be signed to confirm that you will not
undertake such related transactions.
1. Reduction in Pension Annual
Allowance for those drawing tax free cash AND taxable income
Taking this a stage further, the
Government has added to this by restricting the amount of Annual Allowance (the
maximum gross amount you can put in a pension in a tax year from all sources
and receive income tax relief) from £40,000 gross to £10,000 gross for those
that draw pension tax free cash AND taxable income after age 55. Full details
of this planned change (from April 2015) can be found here:
Those drawing only tax free cash should
not be affected.
This change as a headline does not look
significant, but it will catch out some pension investors who are trying to be
flexible with their pension benefits whilst still continuing to work.
2. Individual Protection (for
those with pension benefits over £1.25M at 05 April 2014)
HMRC has confirmed that applications
for Individual Protection 2014 can be made online from 18 August 2014. An HMRC
tool for checking your pension Lifetime Allowance is available here: http://www.hmrc.gov.uk/tools/lifetimeallowance/index.htm
3. State Pension uplift in deferment
The DWP has announced in a Ministerial
Statement that the current uplift of 10.4% pa (1% for every 5 weeks deferred)
for those not claiming the State Pension at their allowed date will reduce from
the tax year 2016/2017 by almost half to 5.8%.
Full details can be viewed here: http://www.parliament.uk/documents/commons-vote-office/July-2014/22%20July%202014/29-DWP-PensionIncrements.pdf
This change will be disappointing for some, but is not a
surprise, due to the demographic pressures being placed on the State Pension system.
There are other opportunities to top up the State Pension and we will detail
this further in an additional blog.
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Summary
It is very clear that the authorities
involved in pensions legislation are busy people at the moment. These updates
have been provided to keep our clients and enquirers up to date with the latest
changes planned and announced for pension and retirement planning. Some
investors choose to use other alternative vehicles (usually in combination with
pension benefits) for their retirement, such as ISAs, or New ISAs (NISAs) as
they are now called. The contribution limit for these has increased to £15,000
from the beginning of July 2014 (from £11,880) and this tax efficient allowance
is usually worthwhile using where possible.
No
individual advice has been provided during the course of this blog. If you
would like financial advice on the allocation of your funds or your investment
strategy, then please contact the Chapters Financial team in Woking (01483
330800) or Guildford (01483 578800).
Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.
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