Posts Tagged ‘pension advice’

What Does The 2016 Budget Mean for Pensions?

Tuesday, March 8th, 2016

What Does The 2016 Budget Mean for Pensions-On 16th March 2016, Chancellor George Osbourne announces the 2016 Budget.

Speculation on what will be changed has been on-going for months with recent reports (BBC, 2nd March) suggesting that the government was considering:

  • Abolishing the 25% lump sum which pensioners are allowed to withdraw tax free when their pensions mature
  • Cutting the maximum annual contribution
  • And perhaps even abolishing the entire tax relief system.

Rumoured Changes to Pensions

Tax relief on pension contributions is a growing issue for the economy. Employees benefit from tax relief because the portion of their income that goes into their pension is not taxed. Currently, the more income tax you pay, the more tax relief you receive on your pension contributions. Changes to this system could save the country a lot of money, and benefit some pension savers too.

HMRC data shows that total tax relief on registered pension schemes doubled between 2001-2 and 2013-14. At the moment, pension contributions are not taxed, but money taken out is taxed. Top rate taxpayers get 45% tax relief on their pension, higher rate taxpayers get 40%, and basic rate taxpayers get 20%. Higher rate and additional rate taxpayers receive two thirds of tax relief. Life expectancy continues to rise, meaning that tax relief on pensions is costing the country more as time goes on.

Flat Rate of Tax Relief on Contributions

One option that was considered was bringing in a flat rate of tax relief on contributions. Changing the system so that everyone gets the same level of tax relief would save the government a huge amount of money and benefit most ordinary people. However, this would be unpopular with wealthier people and, according to some, more difficult to administer.

The second option was to change pensions to resemble Individual Savings Accounts (ISAs). With an ISA or the possible new style of pension, contributions would be taxed beforehand via income tax, but withdrawals from the pension pot would not be taxed.

A less drastic option is for Osbourne to reduce the maximum pension contributions that individuals can make in a single tax year. Currently, everyone can save up to £40,000 per year into a pension. According to the BBC, it is “highly likely” that this will reduce, perhaps to as low as £25,000.

This option is less radical than overhauling tax relief, but it could be significant for people who have fallen behind on pension contributions and want to catch up as they approach retirement. The annual allowance has been reduced previously, being cut from £50,000 to £40,000 in 2014. Savers who want to contribute more than these amounts may want to consider getting pension advice soon, as future budgets may see further cuts to this allowance.

Latest News on Pensions in the 2016 Budget

On the 5th March it was reported that the Chancellor had ditched the proposed changes to tax relief on pensions. This means that upfront tax relief will remain, and there will be no flat rate of tax relief after all. However, these changes may still happen in future. An anonymous source at the Treasury told the BBC that this was “not to right time” to make these changes. The proposed changes would have cost the wealthy but encouraged lower earners to save more for retirement.

The announcement was disappointing for some, including the National Pensioners Convention, but ex-pensions minister Steve Webb said it was the right decision. Eleanor Garnier, the BBC’s political correspondent, speculated that the decision not to reform pension tax relief at this time may be related to the upcoming EU referendum, with George Osborne steering away from upsetting voters.

What Can You Do?

Although tax relief is not being addressed in this Budget, Osbourne still has the option of reducing allowances and making other changes to the system. Pension savers of all ages would do well to monitor their own arrangements, get pension advice from qualified pension advisers, and ensure they are contributing enough to see them through in light of changes that may or may happen next week.

If you are looking for advice on pensions, you can contact the advisers at Maxim Wealth Management for a free consultation: 0141 764 0040 (Glasgow office) 0207 112 8654 (London office)

Winners and Losers from the 2016 New State Pension

Friday, February 26th, 2016

Winners and Losers from the 2016 New State PensionThe New State Pension comes into force from 6 April 2016 and new UK pensioners will find a number of differences, with some pensioners gaining from the changes, while others will lose out.

What is the New State Pension 2016?

The new pension applies to everybody reaching pensionable age on or after 6 April and amounts to a maximum total benefit of £155.65 each week. Amounts of pension due are based on National Insurance records and pensioners will need a minimum of ten years payments in order to qualify for the minimum payments.

The new maximum pension is higher than the existing maximum rate of £115.95 weekly, however, you need at least 35 years of qualifying National Insurance contributions to achieve payments at this level. You could still qualify for the maximum pension if National Insurance credits were allocated at times during your life, for example if you were a carer, unemployed or parent with childcare responsibilities.

Does Everyone Qualify for the New State Pension?

The UK Government has failed to highlight just how many changes have been put in place and how they will affect new retirees and people who are approaching retirement age. An MPs enquiry is currently underway to investigate reasons the government failed to communicate all the forthcoming changes in a comprehensive manner to the public.

Reviews of the new regulations have already highlighted that only about 37 percent of retirees in 2016/17 are likely to qualify for the full rate of payment, as anybody who contracted out of the State Pension Scheme to join employment schemes will be unable to receive full payments. If you don’t qualify for the maximum payment, payments made into vocational schemes should ensure you won’t lose out financially.

Who Are the Winners and Losers Under the New Pension Scheme?

The major losers under the new scheme will be higher earners who won’t qualify for such generous state pension. It is felt likely that these pensioners would usually have built up substantial vocational pension and/or savings to mitigate any losses, however.

Winners under the new scheme are likely to be women who may only have partial National Insurance contribution records, alongside substantial credits due to carer responsibilities. Additionally, self employed people who have run their own businesses are likely to have access to higher payments. The total benefit to women and the self employed under the new regulations is likely to amount to around £40 per week, so it’s a genuine increase for some people retiring from April 2016 onwards.

What Can You Do to Improve Your Life At Retirement?

Increased likelihood of living longer has also meant reforms to the retirement age. From the year 2020 pensionable age goes up to 66 for men and women, and increases to 68 by the year 2046.

If you’re nearing retirement age now, it may be disappointing to consider you could have to work until the age of 66 and it’s important to find out what your state pension is likely to amount to. It’s possible to receive an accurate state pension forecast if you’re over the age of 55, and this will give you indicators of any additional savings or investments you need to put in place.

There are a number of resource available to help you understand all the potential pension and saving options. However this information is often generic and should not be taken as advice. In order to make the best decision about your financial future it is recommended that you seek professional pension advice from an experienced adviser. They will be able to help you put together a savings plan that fits your needs.

Maxim Wealth Management have been helping clients across the UK find their perfect saving vehicle since 2001. If you are interested in financial advice please contact us today for a free consultation: Glasgow 0141 764 0040 or London 0207 112 8654.

5 Pension Mistakes You Should Avoid

Wednesday, February 10th, 2016

5 Pension Mistakes You Should AvoidMany young people don’t think about their retirement. Even people reaching that inevitable age can bury their heads in the sand about building a pension pot; not wanting to face the truth that they are growing older.

This way of viewing retirement is understandable however the sooner you begin saving, the bigger the pot you will be able to build – something your future self will thank you for.

If you are unsure where to begin here are five pension mistakes you should avoid if you wish to maintain a similar standard of living in retirement to the one you have currently enjoy.

1. Not Having a Pension

The basic state pension will change to a flat rate of £155.65 per week from April this year (for people who have paid 35 years of NI). This equates to below £10,000 per annum. For many people this is a huge cut in their salary and not enough to maintain a reasonable standard of living.

You should also consider the fact that the pension age is rising over the next few years, so those wishing to retire in their early 60s will need to have other resources to live on until their state pension kicks in.

2. Delaying Saving

The value of your pension pot at retirement is based on the amount you put in and the length of time it is invested.

Whilst diverting your money into savings early on in your career may seem unfavorable when you are young, your older self will greatly appreciate it.

3. Not Understanding Your Options

There are a number of ways to save for retirement. You might be best suited to an ISA, whilst others may benefit more from a SIPP. What is best for you may not be the same as what is best for your friends or other members of your family. Understanding the difference and finding the option that suits you best is crucial for your pension pot to grow the way you want it to.

4. Failing to Review Your Pension Regularly

Do you know how much your pension pot is worth? Or which funds you have and their associated risk? If you currently have a financial or pension adviser, you may benefit from switching.

5. Not Seeking Pension Advice

The government launched a free service, Pension Wise, to help you understand what you can do with your pension pot money which people had found the website helpful to various degrees. It is important to note that the service offers guidance on what individuals can do, but not necessarily what they should do.

For detailed, individual advice on pensions it is worthwhile researching financial advisers who will be able to provide you with more specific advice on what you should do given your circumstances and attitude to risk.

Maxim Wealth Management offer financial advice from our offices in Glasgow and London. To request a FREE consultation please call us on 0203 841 9941  (London) or 0141 764 0040 (Glasgow). Alternatively you can fill in our contact form and we will get back to you.

Pension Transfer Advice

Wednesday, August 29th, 2012

Pension Transfer Advice

Pension transfer advice, for the pot that you have accrued.  Most people switch jobs several times during their working life.  When you change employers, it is worth thinking about, combining your pensions into one pot.  It is easier to keep an eye on fund performance if your pensions are all under one umbrella.  A single pension pot will incur less paperwork and administration, and could also generate lower costs and better overall performance.  Sounds like a no-brainer?  In theory yes, however, there are some important issues to consider before taking the plunge seek independent Pension Transfer Advice.

Occpational Pension Schemes

Most occupational pension schemes and private schemes can be transferred, but there are restrictions and potential pitfalls.  It is not usually worth transferring final-salary or public-sector pension schemes the benefits are too good to lose.  You should only transfer if you have actually left a company.  If your current employer contributes to your existing occupational pension scheme, you should not switch.  Also it is worth noting that the money in your pension can only be transferred from one pension scheme to another (until you have retired), and not every new pension scheme accepts inward transfers.

Small Pension Pots

If your pension pot is very small, it may not be worthwhile switching: you will have to pay charges when you transfer, and some providers impose harsh penalties if you leave their scheme.  And, if you are relatively close to retirement, you might not have sufficient time to recover the costs incurred by transferring.

According to the Pensions Advisory Service, the Department of Work & Pensions (DWP) is set to publish a consultation paper examining the consolidation of small pension pots.  Possible approaches could see your pension pot moving with you when you change your employer; alternatively, when you change your job, your pension pot could be left behind and – unless you decide to opt out – the cash would automatically be transferred to a central aggregator fund.  The DWP believes the changes would increase the visibility of pensions saving: instead of seeing several small figures, each individual would be able to view one larger, consolidated figure.

Transferring and aggregating your pension pots might generate significant long-term benefits; however, any decision to do so should be taken for the right reasons.  Tread carefully and, above all, take expert advice before making an irreversible decision.  For Pension Transfer Advice contact Maxim Wealth Management  who are well-placed to help you with this.

Is NEST best for your business?

Thursday, September 15th, 2011

NEST, the National Employment Savings Trust launches in 2012.

All employers will be forced to set up a Company Pension Scheme for their employees or auto-enrol their employees into the new NEST pension scheme. Group personal pension schemes (GPPs) have emerged as one potential solution which could help employers keep control of what pension benefits are offered to different individuals.

NEST pension or GPPs?

The main attraction of GPPs is their simplicity. The employer passes contributions straight from payroll to the provider and this is then invested as per the employee’s instructions. Through a group scheme, each employee has their own plan so they benefit directly (and only) from their own contributions and can also decide how this is invested. Contributions benefit from tax relief at the employee’s highest rate and employers can also make contributions to top this up.

This not only helps the employee but also the company tax bill – and can also reduce national insurance contributions. In addition, an employer contribution of at least 3% (which will be phased in between 2012 and 2016) is a requirement demanded by the NEST rules. Note, however, the rules are still being finalised, so may be subject to change.

Finally, at the end of the employment, employees simply take their sub-plan with them and keep contributing themselves. This reduces the need for employers to administer retained benefits and also helps the employee keep their career pension savings in one place.

If you think your business would benefit from a group personal pension scheme rather than being forced to meet the requirement of NEST, our dedicated Corporate Pensions Advisor would be happy to help talk you through the pros and cons.  Call now on 0141 764 0040.

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