What does the future hold for tax reliefs?
You may have read in the newspapers recently that the Conservatives are being put under pressure by their coalition partners, the Liberal Democrats, to increase the personal allowance to aid low and middle income families during these difficult times.
To help pay for this increase, the Liberal Democrats suggest that the tax relief higher earners receive on pension contributions is too generous and should be cut or abolished. Some have also asked if the Government will make changes to the pension commencement lump sum (PCLS), commonly known as ‘tax free cash’.
How can we be sure?
Until the budget announcement on 21 March 2012 we can’t be sure what will happen. It is worth noting though, that similar rumours have been circulated prior to previous Budget announcements with no changes actually being implemented.
What you can do to maximise tax benefits now?
There are a number of options available to you.
If you are concerned about higher rate tax relief being abolished on pension contributions you could:
|Maximise your contributions this tax year in line with the Annual Allowance (£50,000).|
|If eligible, carry forward up to three years of any unused annual allowance you have in order to maximise your pension contribution this tax year.|
|Consider bringing forward any planned 2012/13 contributions into the current tax year.|
|Increase your regular contribution – remember you can subsequently reduce it at a later date.|
Currently you can take an income from your pension from age 55. Normally you can take up to 25% of your pension fund tax free as a lump sum. If you are concerned that this benefit may be reduced you could take your tax free cash now and take no income. This is known as income or capped drawdown, and it means that your pension fund remains invested and any future income is not guaranteed. There are a number of risks associated with drawdown and you should read both our Income Withdrawal Key Features and Taking Pensions Benefits documents before making any decision.
Please note we are providing you with the options available and are not giving any advice. No decision has been made on higher rate tax relief on pension contributions or any changes to the tax free lump sum. Due to the importance of these decisions, you should seek financial advice.