Pension changes that could affect your retirement savings

There was a real fear, during the run-up to the autumn budget, that there would be bad news on pension tax relief.  Speculation was rife that it would be reduced, substantially. In fact, the Chancellor left the generous incentives that make pension saving so worthwhile, especially for higher rate taxpayers untouched.
However, there were some changes to pensions in Mr Hammond’s budget. We look at what they were, and whether your pension plans will be affected.

Pension Lifetime Allowance increased

The Lifetime Allowance or LTA is the maximum you can build up in your pension pot without facing a tax charge – which can wipe out the benefits of the tax relief that helped you put so much away.

The tax charge for exceeding the LTA is 55% if taken as a lump sum or 25% if you take it as income.

Over the years, the LTA has gone up and down. It currently stands at £1.03million, but is currently on the up. It will be indexed each year in line with the Consumer Price Index (CPI) rising to £1.05m in the 2019/20 tax year.

Pensions for the self-employed

The government wants everyone to save into a pension and Automatic Enrolment for employees is a first step. The next seems to be contributary pensions for self-employed workers, who make up a growing proportion of the workforce.  The Department of Work and Pensions are set to publish a paper setting out the government’s approach to pension participation for those in the gig economy.

What form this will take is not yet known, although it may involve some kind of contribution akin to the existing NI arrangements, which should be good news for the self-employed.

Low-paid workers may miss out on pension tax relief

The personal allowance will increase from the current £11,850 to £12,500 in April 2019. This means more money in our pockets, as we can earn more before tax starts being deducted, but it also that means more people will miss out on pension tax relief.

Currently, under the terms of Automatic Enrolment, anyone earning more than £10,000 per year must be at least offered a workplace pension. But they don’t pay income tax until they earn more than the personal allowance.

This is where it gets complicated. They can still get from tax relief on their pension contributions, but only if their employer has set up the right kind of pension.

If their employer has a Group Personal Pension, with tax relief delivered as ‘relief at source’, workers get full basic rate tax relief on their contributions. But if the workplace pension uses the ‘net pay arrangement’, they don’t.

From next year, those earning between £10,000 and £12,500 might miss out on the government contribution to their pension fund.  Low-paid and especially part-time workers could be affected.

There are calls for the government to address this issue, but until they do, people will be missing out.

The pensions dashboard is (almost) definitely coming

The Budget suggested that the government remains committed to the pensions dashboard project. This is an online hub that will allow people to see all their pension pots in one place. The government has allocated £5m to the project and consultations continue on how it will work. The latest news is that the state pension will be included when the dashboard finally is rolled out, which could be next year according to the Government.

Finding out more

The changes may be less dramatic than expected, but anything that influences your biggest and most important investment needs to be looked at carefully.

At Continuum, we would be very happy to look at the changes, and your existing pension plans, with you.

The levels, bases and reliefs from taxation are subject to individual circumstances, and may change subject to status.

The value of your pensions and investments, and the income they produce, can fall as well as rise and you may get back less than you invested.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

Book a free initial consultation

Book an initial consultation with one of our independent financial advisers or call us on 0345 643 0770 if you would like to discuss further.

Sources: – Pensions dashboard could finally be ready next year! Reluctant firms may be forced to sign up – and anti-scam protections are planned – 3rd December 2018

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