After spending the last year getting to grips with the new pension rules, the latest news that another ‘pension revolution’ may be around the corner may not be welcome. However this looks a distinct possibility following Chancellor of the Exchequer George Osborne’s summer announcement of a new consultation on the UK’s pension regime.
There are no firm details as yet, but he expressed a wish to simplify the pension system further by stating “Pensions could be taxed like ISAs – you pay in from taxed income and it is tax-free when you take it out. In between it receives a top-up from the Government.” The reaction from the financial sector has been mixed. Although many welcome his desire to simplify the regime, they believe ISAs have retained a ‘halo’ effect precisely because they have been relatively immune from government tinkering. As one industry commentator observed:
“What the current regime could really do with is some stability and relief from further meddling. The only way to encourage more people to save is to keep the rules as simple as possible. ISAs are a truly trusted product within the financial services industry – they are simple, easy to understand and accessible. It would be disastrous if people were to save for retirement only to find in later life that a cash-strapped government changes the rules again to tax income for a second time.”
The Chancellor’s move to taper tax relief on pensions for high-earners had been well-flagged. From April 2016, for every £2 of adjusted income over £150,000, an individual’s annual allowance will be reduced by £1, down to a minimum of £10,000.
As advisers we have urged higher-earners to take advantage of the reliefs where possible up to the end of this tax year. However, George Osborne did not – as some had expected – make changes to the salary-sacrifice regime, meaning higher-earners on the margin can still use this to bring them below the threshold.
Given the potential for further changes on contribution levels, we would now urge all Platinum clients to assess their situation and maximise any tax savings whilst the legislation still provides for such generous tax breaks for all levels of tax payers.
As always, we are only a phone call or e-mail away with advice.