The State Pension......and the possible changes ahead?

This week we have seen our coalition Government turn their attention to the State Pension and the way the current benefits are provided. I am sure there will much press coverage, comment and concern about future changes, both for those who may be effected in the shorter term, from 2017, and for those who hope to claim this benefit into the longer term.

I wanted to provide a summary, and for the purposes of this Blog, I have divided this into the following sections:

The Past and Present

Currently, the basic State Pension amounts to £107.45 per week. This income is paid gross, but is taxable and increases with the Consumer Prices Index (CPI) with a minimum guarantee of 2.5% if CPI falls below this rate, which it did in 2012. On top of this, you might also receive additional State Pension income from past accrual of the State Earnings Related Pension (sometimes known as SERPS) or its successor, the Second State Pension (S2P). I have seen this additional pension benefit when added see the overall pension paid double on regular occasions.

My current understanding is that those who have State Pension benefit in payment before 2017 will not be affected by the possible proposals.

You can probably tell that this can be a complicated calculation when taking into account all the varying factors, with a maximum accrual achieved over 30 years (proposed to increase to 35 years). Here lies part of the perceived problem and the target to simplify the process. It is also proposed that no State Pension will be achieved, with a proposed minimum of 10 years National Insurance accrual to qualify for any State Pension.

How do I check my current State Pension benefit?

You can check your current accrual of your State Pension by completing a BR19 State Pension Forecast Form (available here).

State Pension Deferral

It is currently possible to defer the State Pension after your normal State Pension age (which we know as been increasing over recent times and still increasing), seeing the benefit deferred increasing by 1.0% for every 5 week period. This increase amounts to 10.4% over a full year and this option can be beneficial in financial planning for those who, as an example, continue to work and have no immediate need for the income.

For information, this increase can be taken as taxable cash or increased taxable income. It will be interesting to see if this option survives the final ruling on future changes.

The Future?

The new proposals put forward for 2017 suggests a flat rate of State Pension of around £155.00 per week in total (about £144.00 per week in today’s terms). Of course, this figure may change when everything is finalised. Past SERPS and S2P accrual (which might have given a higher income if the rules had not changed) will be gone.

Of course and as usual, there are winners and losers by changes in legislation. Winners are likely to lower earners and some have indicated females who opted out of the State Pension many years ago. Losers are likely to be higher earners or medium earners who did not contract-out of SERP's (option started in 1988 and stopped around 2 years ago).

Summary

It is suggested that the other 'winner' in these proposals will be the Government, with an overall reduction in long term costs. We are all living longer and, understandably, this places greater burden on the pension system, whether that be the State system or private sector schemes. Clearly, planning for your future retirement will become ever more important to secure future benefits.

No individual advice has been provided during the course of this blog. Pension and retirement planning should be planned for carefully and if you would like to receive individual advice on this subject, then please contact the team at Chapters Financial Limited on 01483 578800

Keith G Churchouse FPFS
Director, ISO22222 Certified Financial Planner
Chapters Financial Limited, Guildford, Surrey
Chapters Financial Limited is authorised and regulated by the Financial Services Authority, number 402899.

The Autumn Statement 2012

It was a busy day at Westminster on Wednesday 05th December with the numerous announcements and changes to the many rules and regulations that maintain the UK Governments fiscal policy. As the saying goes 'the devil is in the detail' of these Budget changes, with additional tax and allowances being taken on one hand and given back or withdrawn (such as the planned 3p (approximate) fuel tax rise in January 2013) on the other.

From a financial planning perspective, there are some headlines that will be of interest (with some benefits and concerns) to our clients and enquirers and I have listed some of these changes below. This is not an exhaustive list, but provides many relevant points that you may want to consider:

Capital Gains Tax (CGT) Increase

The current allowance of £10,600 (2012/2013) will increase by 1% the tax year start 2014, rising to £11,100 by tax year 2015/2016.

ISA Allowance Increase

The current allowance of £11,280 will increase by 1% to £11,520 from the tax year start 2013.

Pension Annual Allowance Reduction

The maximum annual pension contribution in a pension input period (PIP) will fall from £50,000 (from all sources) to £40,000 from tax year start 2014/2015.

This is likely to have significant effect on higher earners and those with members of final salary pension schemes with higher annual incomes.

Pension Lifetime Allowance Limit Reduction

The current Lifetime Allowance Limit (LTA) is falling from its current limit of £1.50m to £1.25m from the start of the tax year 2014/2015.

This is likely to haves significant effect on higher earners who have long service within a final salary arrangement or large private pension arrangements. A point of note is that a transitional 'fixed protection' regime will be introduced for those who understand that they may be affected by the reduction in the lifetime allowance (LTA).

Pension Income Drawdown Maximum Withdrawal Limit

Originally the maximum ‘drawdown’ limit was 120% of the Government Actuarial Departments (GAD) limit that could be approximately achieved through averaged single life annuity rates. This fell to 100% about 18 months ago, sadly at a time when annuity rates were continuing to fall.

As soon as legislation will allow, the original limit of 120% is being restored, which will be of interest to those who have seen their maximum withdrawals fall significantly in recent times.

Income Tax Personal Allowance Increase

The Personal Allowance for the tax year 2013-14 will increase to £9,440 and the basic rate limit will be set at £32,010.

The increase in the higher rate threshold will be capped at 1% for tax years 2014-15 and 2015-16.

Inheritance Tax Nil Rate Band Allowance Increase

The current Inheritance Tax nil rate band allowance for an individual of £325,000 will increase to £329,000 from tax year start 2015/2016.

Summary

These are only examples of some of the changes that may be of interest to you when considering your financial planning for the future. Because of the scope of the changes and because each client is advised individually, no individual advice is provided in the content of this Blog.

More details of the Autumn Statement changes can be found at the HMRC website here:
http://www.hmrc.gov.uk/budget-updates/march2012/autumn-statement-dec2012.htm

Chapters Financial Limited is not responsible for the content of external webpages.

If you would like to consider your own financial planning further then please contact Chapters Financial Limited through our website or on 01483 578800.

Keith G Churchouse FPFS

Director
ISO22222 Certified Financial Planner, Chartered Financial Planner Chapters Financial Limited

Chapters Financial Limited is Authorised and Regulated by the Financial Services Authority, number 402899.