Page 60 - Phonebox Magazine April 2011

brings you
Finance Matters
New tax year brings changes to pensions
Several changes to the UK's pension rules come into force from 6th April 2011. As with so many things these days, the main premise behind many of these changes is cost savings for the Exchequer by reducing the tax relief available through pensions. Currently, the maximum amount you can pay into pensions in any given year, and receive tax relief, is £255,000. This is being reduced to £50,000 and you can invest an amount equal to your earnings, up to this level.
A limit on the size of pension funds at retirement began in 2006 when the Lifetime Allowance was introduced. This initially started at £1.5m and has risen over the last few years to £1.8m. However, this has now been reduced back down to its original level of £1.5m.
Whilst both of the above measures can be seen as negative – although in reality the vast majority of individuals will not be effected – the change that is likely to effect most people is, in fact, much more positive. One of the most contentious issues surrounding pensions has always been the necessity
to purchase an annuity with your pension fund by the time you reach age 75. Although this was technically removed by the old Labour administration, the taxation surrounding it was so draconian that few people took it up.
From April 2011 the need to buy an annuity has been removed, although tight restrictions over how much income can be taken from a pension fund will come into force. This is to ensure that people do not erode their pension fund to nothing by taking more than is sensible. For those who have secure income above £20,000 from other sources (including the State pension) these restrictions will not apply.
Unlike the other changes, this change could have an effect on the large number of people that retire each year.
If you would like to discuss your own pension needs or if you are an Employer who may be effected by this, then please feel free to call us for a free initial meeting. See our advert below.
60 Phonebox Magazine