Clock ticking on new pension tax rules
By Stephen Womack, Chartered Financial Planner
DIRECTORS, partners and other higher earners face a big shake up in pension rules which could limit their ability to save for retirement.
Savers can currently pay up to £40,000 per tax year into pensions and earn valuable tax relief. This money can come from personal contributions or direct from an employer payment to the pension.
From the new tax year in April 2016, those with earnings and other income of more than £150,000 in a tax year will see this pension annual allowance reduced. For the highest earners, with incomes of more than £210,000, the allowance drops to just £10,000.
Anyone with income of more than £110,000 needs to review their position. This is because pension contributions paid by employers on your behalf are counted as part of your overall income where other earnings or income top £110,000. Here a £40,000 employer contribution takes the saver up to the £150,000 threshold.
David Williams IFA has already started working with clients to mitigate the impact of the changes. For some, there is a six-month window that will allow a final set of substantial pension contributions to be made. Others are looking to explore tax-efficient alternatives to pensions.
The new rules are complex. Savers will still be able to carry forward unused pension allowance from up to three previous tax years. This means that in some cases it will profit higher earners to make extra payments into pensions both before the end of the current tax year and then into the next tax year too.
And a related tweak to the rules means those who fully funded pensions ahead of the summer Budget this year may qualify for a ‘second bite of the cherry’. They could have the option to pay a further £40,000 into pensions before the end of this tax year.
All the changes emphasise the need for regular reviews of your financial plans. The expert knowledge and in-depth experience of the team of advisers at David Williams IFA Chartered Financial Planners can help you chart a safe course through these latest pension changes.