Pensions. Last chance saloon?

More pension changes are on the way, which is bad news this time, particularly for high earners.

As the April year end approaches, and with a budget on 16 March, now is therefore a good time to consider your pension options.

From April, high earners will be hit, as the amount you can invest in a pension and receive tax relief on will fall to as little as £10,000 for some. If you earn more than £150,000 you are likely to be affected, but those with lower incomes could well be caught too. Additional rate taxpayers should therefore be looking to maximise their contributions now.

But further pension changes are expected in the Budget, the major one being significant changes to pension tax relief. The consensus is that major cuts are likely to the current 40% relief, with experts predicting a flat rate of somewhere between 25% and 33% for all, so this would impact upon all higher-rate taxpayers earning over £43,000pa.

Because of this, it might make sense to bring forward any planned contributions, particularly as any changes are expected to come into effect immediately, with no grace period.

The lifetime allowance is also being reduced from £1.25m to £1m. Any monies above this when you draw your pension will be hit by a penal tax rate of up to 55%. If it looks as though your pensions, including final salary schemes, will be worth more than £1m by the time you retire or reach age 75, whichever is sooner, you should think about getting financial advice. Part of this process should involve considering the protection options available, such as Individual Protection 2016 and Fixed Protection 2016.

Finally, there is a last opportunity to pay more into your pension and get extra tax relief this year. This is due to the government simplifying some of the complex rules, effectively introducing a new £40,000 allowance for contributions made from 09 July 2015 to 05 April 2016. So if you made pension contributions in the current year before 08 July 2015, even up to the £40,000 limit, you may still be able to invest more this tax year, potentially up to a further £40,000. Again, talk to your Kellands adviser to check out your options.

The pressure is therefore on for many to make pension contributions within the next few weeks. For additional rate taxpayers, this looks like a no-brainer but higher rate taxpayers, particularly those aged over 50, should also be considering further contributions. Younger workers in highly paid careers should also be looking to use higher-rate tax relief now while it is available.

For help or advice with any of the above issues and with your retirement planning in general, contact Kellands.

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