On July 8th, the Chancellor of the Exchequer gave his budget to Parliament, listing many new rules governing finances that will be in place in the future. The changes announced concerned taxes, benefits, student loans and much more.
Among these new changes are several that affect pensions, concerning the PIPs, taxes and a few other things that may alter how much pension you receive and how you receive it. Here at Burton & Fisher we’re independent financial advisors in Lancaster and we help our clients get the best out of their pensions. As the budget may affect yours, we want to keep you informed as much as possible about what this means for you.
AA Cut for High Earners from 2016
One of the biggest changes to pensions is that those who have adjusted income over £150k will have their annual allowance (AA) cut from the 2016/2017 tax year onwards. This means that those with an income of over this must get their uncut AAs now while they can.
The standard AA is currently at £40k, but with the new rules this will be cut by £1 for every £2 of adjusted income over £150k in a tax year, up to a maximum reduction of £30k.
PIP Aligned With Tax Years from 2016
Another change is that from 6th April 2016 onwards, pension input periods will be aligned with the tax year, with the aim of simplifying the pension rules. However, during the transition it will potentially be possible to create an extra £40k annual allowance for the 2015/2016 tax year, allowing people to have two AAs this year.
Pension Tax Framework under Review
An announcement was made that a review of the pension tax framework will be conducted to ensure that the framework is still fit for its purpose with changing times. The aims are to find out if any changes can be made that will reduce the complexity of pensions, make best use of available tax reliefs and aid people in their retirement planning.
This review may hint at some radical reforms being made to pensions and here at Burton & Fisher we’ll keep our eyes peeled to ensure that you are informed of these.
A reduction in the lifetime allowance for pensions that was proposed in March this year will go ahead as planned and will be in place from April 2016. This reduction will take the allowance £1.25M to £1M. If your pension savings are already over £1M don’t worry, a new transitional protection option is expected to be in place and we are awaiting details of this.
The 45% flat tax on lump sum death benefits will be removed and these will be taxed as the recipient’s income from April 2016.
Although we expected to see changes that would allow pensioners to sell their annuities in the budget, this will be delayed until 2017 to allow for safeguards to be put in pace.
The ‘triple lock’ state pension increase promise has been reaffirmed until at least 2020, meaning that state pensions will increase by the highest of: earnings growth, inflation, or 2.5%.
This should keep you in-the-know about all the changes in the budget that may affect your pension, to help you stay prepared for the future. If you need any advice on your pensions then we at Burton & Fisher will be able to help. As independent financial advisors, we help our clients get the best out of their pensions for their circumstances. If you’d like more information about what we can do for you don’t hesitate to contact us on 01524 416 872.