Press releases

In amongst the technical papers issued by HMRC on the back of the budget changes, Skandia has discovered a hidden gem. An alteration in the formula for calculating tax free cash for pre 6 April 2006 (A-Day) members of occupational pension schemes could lead to people receiving more tax free cash when they retire.

Additional rate tax payers should take advantage of pension tax relief now.

People with ‘enhanced protection’ on pensions valued up to £1.8 million could benefit from switching to fixed protection before the tax year end deadline. If they continue with enhanced protection, their maximum tax-free cash allowance will fall to £375,000 from 6 April, which is 25% of the reduced £1.5m Lifetime Allowance (LTA). However, if they switch to fixed protection then the maximum tax-free cash available would remain at £450,000, which is 25% of the current £1.8m LTA, resulting in an extra £75,000 in available tax-free cash.

Skandia predicts short term pain for long term gain for the Government as thousands of higher rate tax payers opt out of the pension system.

On 6 April 2012 the lifetime allowance (LTA) for pensions is due to decrease from £1.8m to £1.5m. People aged 55 or over with pension savings that could reach £1.5m have the opportunity to maximise their available LTA provided they take action prior to 6 April 2012.

People who are eligible for flexible income drawdown on their pension savings can use the scheme to significantly reduce their inheritance tax liabilities, according to investment specialist Skandia.

The latest 15 year gilt yield has fallen to a new record low of 2.25%, which will lead to a lower income for people retiring today, whether it be via a smaller annuity income or a lower maximum income level in income drawdown.

People may not realise, but when they reach age 75, the retirement options they are using, or are expecting to use, may no longer be available to them. Instead, they may find they are stuck in outdated and inflexible pension contracts. People should take action to review their existing pension arrangements now, before they reach age 75, to help ensure they understand whether the options available to them will meet their longer term requirements.

On Monday 28 November, HMRC announced some changes to the carry forward rules governing pension funding. The changes enable people to carry forward unused allowances that were previously deemed unavailable and hence, can now pay more into their pension and benefit from further tax relief. This extra funding capability is great news, but is only available until the end of the current tax year, into pension arrangements with an input period ending in the 2011/12 tax year. Some people may not realise that they can still make use of this opportunity even if their pension input period in the current tax year has ended.

The latest 15 year Gilt Yield figure, which will drive the maximum level of income withdrawal someone can take from their pension from December, has hit a new record low. The yield has fallen 37% since the start of the tax year, financially squeezing those about to take an income from their pension savings, and those approaching their pension income review period.

Statistics revealed by Skandia shows that over half of their pension customers in income drawdown are not actually taking any income*. This could be a missed opportunity for many.

Independent financial advisers believe a massive 70%* of their customers currently have a pension funding gap, according to new research conducted by Skandia, the investment platform. This is where customers have not saved enough money to reach their desired level of income in retirement. Advisers believe customers would need to pay on average 56% more to their current pension contribution to fund this pension gap.

The latest 15 year Gilt Yield figure, released on 14th October, shows that following the Government’s latest round of quantitative easing, Gilt Yields remain at historically low levels. People entering into income withdrawal today could expect a fall of up to a quarter of their annual income compared to just six months ago.

Anyone with a pension pot of around £200,000 or more needs to urgently review their retirement plans to assess whether they are in danger of exceeding the lifetime allowance which is due to reduce from £1.8 million to £1.5 million in April next year.

Political debate continues with regard to the 50% income tax rate payable on taxable income in excess of £150,000 in terms of how long it may stay in place.