Specialist Edge: Pension Changes (Richard Escott from the Alan Boswell Group)
We welcome Richard Escott from the Alan Boswell Group to share his specialist knowledge on new pension rules. Richard writes…..”Subject to Royal Assent, the new pension rules in the Finance Act are very attractive indeed, compared to the previous rules, and those expected, as far as ‘high earners’ are concerned.
Each individual with sufficient earnings will be able to invest up to £50,000 gross (paid £40,000 net of basic rate tax relief at source), and will be able to achieve income tax relief at their highest marginal rate. It was expected that relief would be restricted to the 40% rate even for 50% tax payers.
In addition, individuals can pay extra to make up for any shortfall in the previous three tax years between what was actually paid and £50,000. For example, an individual who had not paid anything at all since 6 April 2008 would be able to pay up to £200,000 in the current tax year if they had earnings to support it, and had an existing pension in place throughout that period. For employees such as directors, the opportunity to reduce salary or bonus, and have a corresponding employer pension contribution remains and has the additional benefit of saving both employee and employer National Insurance. Employer contributions must also qualify under the ‘wholly and exclusively’ rules for business expenditure generally.
One negative change is that the Lifetime Allowance will drop from £1.8m to £1.5m from April 2012 although those with particularly large pension pots can keep the limit at the £1.8m level, making an election before 5 April 2012, and ensuring that they pay no pension contributions whatsoever after that. Any excess pension value over the Lifetime Allowance suffers a punitive tax charge so careful planning may be required for some.”
Richard would be delighted to review your pension strategy. As a fee based adviser his advice would be independent and uninfluenced by provider commission. For more details, please contact Richard on 01603 218065 or email rescott@alanboswell.com
