Budget 2013 – Never mind BEER, what about PENSIONS?

Bevan & Buckland Accountants logoAway from the headlines about beer, children and mortgages in yesterday’s Budget was some generally positive news for anyone with a pension, writes Bevan & Buckland’s Financial Planning Manager, Gareth Tregidon.

Pre-Retirement

The first thing to note is that, in the main, there was nothing new announced that we weren’t already aware of.  The constant “tinkering” with pensions by successive Governments is one of the key reasons why I believe people lose confidence in this important area of financial planning.  Not having anything “new” is therefore very much a positive thing.

We were already aware that the annual allowance (the maximum amount you are allowed to pay into a pension each year and still receive tax relief) would reduce from £50,000 to £40,000 from next year.  This, together with a reduction in the Lifetime Allowance (the total amount that can be held within a pension whilst still qualifying for full tax benefits) were announced in the Chancellor’s Autumn Statement.

For those whose planning involves significant contributions, either through personal or company schemes, there are four main issues to be aware of.

  1. If you are one of those lucky enough to be a member of a final salary pension, pay close attention to the total level of contributions being made.As the employer has to ensure that enough money is paid in to guarantee your benefits, this can represent a significant contribution, particularly for those on higher incomes.  (Your scheme administrators should be able to confirm the total level of contributions if you are unsure).
  2.  Find out when your “PIP” starts.The new £40,000 limit applies not to the Tax Year but to your Personal Input Period (PIP).  In some cases, particularly with personal pensions, this may be the same as the Tax Year, however in many cases the dates will differ.  For anyone who’s PIP commences after 6th April 2013 you will fall under the new limits almost immediately.  Your adviser, pension provider or scheme administrator can confirm what the date is, what contribution limits will apply and when.
  3. The Lifetime Allowance calculations are not always as straightforward as you may think, especially if you are a member of a final salary scheme.For those with a personal or money purchase company scheme, the position regarding the total amount held in your pension is easier to work out.  If you are due to retire in the next few years, however, be careful to take into account future contributions and growth as well, and look at what you your fund may be worth in the future.

    Be careful as well if you receive an increase in your income during the year (for example, due to a promotion), as this could potentially increase your benefits beyond the limit.

    The Government has announced that certain levels of protection will be available to help people who, due to the reduction in the limits, will now exceed the allowance.  Full details have not yet been announced, and are to be included in the next Pensions Act.

Post-Retirement

There are two main announcements that could affect either those already utilising certain pension contracts to generate an income, or those who may do so in the near future.

This principally affects those with Capped or Flexible Drawdown contracts (more commonly called Income Drawdown).  If you’ve got one you will already know what they are, but in simple terms it is a way of leaving a pension invested rather than buying an annuity, and then drawing an income from the fund.

Until April 2011 the level of income that could be taken under a drawdown contract is based on the rates determined by the Government Actuaries Department (GAD). These GAD rates were designed to mirror the amount an individual could receive if they had purchased an annuity.

Over recent years these GAD rates have shown less resemblance to standard annuity rates, which led to a call for the system to be reviewed and revised.  This review has now been announced, which we hope will lead to increased rates for policy holders.

An additional benefit which comes into effect next week is the increase in the maximum percentage of the GAD rate that can be taken.

Until April 2011, a drawdown policy holder could take up to 120% of the prevailing GAD rate as an income.  This was reduced to 100% from that date which, combined with other factors such as falling annuity rates and erratic investment returns, led to some pensioners seeing a significant reduction in their incomes.  It has been confirmed that the maximum rate will return to 120% for all policies where the review date is 26th March 2013 or later.  Where a review date falls before 26th March the new limits will take effect at the next annual review.

Summary

Whether you are planning ahead for retirement or you have already reached that point, the announcements yesterday need to be considered carefully as the potential implications are significant.

As with any financial planning, if you are at all unsure take professional advice.  If you don’t already have an adviser, or would simply like a second opinion, please contact me and I will be happy to explain how we can help.

Gareth Tregidon.

Gareth Tregidon is manager of Bevan & Buckland’s Financial Planning Department, which operates from the firm’s Swansea, Pembroke and Haverfordwest offices. The department provides fee-based advice to personal and business clients, both from within the firm and elsewhere.

As well as having over 25 years’ experience in the provision of financial advice, Gareth is a Certified Financial PlannerCM and an accredited Later Life Adviser with the Society of Later Life Advisers (SOLLA).  He is former Chairman of the Institute of Financial Planning in South Wales, and an assessor for the internationally recognised Certified Financial PlannerCM licence. 

http://www.bevanbuckland.co.uk/services/financial-planning

Bevan & Buckland Accountants Swansea Tel: 01792 410100

Bevan & Buckland Accountants Haverfordwest Tel: 01437 760666

Bevan & Buckland Accountants Pembroke Tel: 01646 682383

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