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Wednesday, 18 February 2015

10 good reasons to pay more into a pension before 5th April

There are less than two months to go before the new pension freedom becomes reality. With the legislation now in place, the run up to April is time to start planning in earnest to ensure your clients make the most of their pension savings.

To help, we've put together 10 reasons why your clients may wish to boost their pension pots before the tax year end.

1. Immediate access to savings for the over 55s.
• The new flexibility from April will mean that clients over 55 will have the same access to their pension savings as they do to any other investments. And with the combination of tax relief and tax free cash, pensions will outperform ISAs on a like for like basis for the vast majority of savers. So clients at or over this age should consider maximising their pension contributions ahead of saving through other investments.

2. Boost SIPP funds now before accessing the new flexibility.
• Anyone looking to take advantage of the new income flexibility may want to consider boosting their fund before April. Anyone accessing the new flexibility from the 6 April will find their annual allowance slashed to £10,000.
• But remember that the reduced £10,000 annual allowance only applies for those who have accessed the new flexibility. Anyone in capped drawdown before April, or who only takes their tax free cash after April, will retain a £40,000 annual allowance.

3. Providing for loved ones.
• The new death benefit rules will make pensions an extremely tax efficient way of passing on wealth to family members - there's typically no IHT payable and the possibility of passing on funds to any family members free of tax for deaths before age 75.
• Clients may want to consider moving savings which would otherwise be subject to IHT into their pension to shelter funds from IHT and benefit from tax free investment returns. And provided they're not in serious ill-health at the time, any savings will be immediately outside the estate, with no need to wait 7 years to be free of IHT.

4. Get personal tax relief at top rates.
• For clients who are higher or additional rate tax payers this year, but are uncertain of their income levels next year, a pension contribution now will secure tax relief at their higher marginal rates.
Typically, this may affect employees whose remuneration fluctuates with profit related bonuses, or self-employed individuals who have perhaps had a good year this year, but aren't confident of repeating it in the next. Flexing the carry forward and PIP rules gives scope for some to pay up to £230,000 tax efficiently in 2014/15.
• For example, an additional rate taxpayer this year, who feared their income may dip to below  £150,000 next year, could potentially save up to an extra £5,000 on their tax bill if they had scope to pay £100,000 now.

5. Pay employer contributions before corporation tax relief drops further.
• Corporation tax rates are set to fall to 20% in 2015. Companies may want to consider bringing forward pension funding plans to benefit from tax relief at the higher rate. Payments should be made before the end of the current business year, while rates are at their highest.
• For the current financial year, the main rate is 21%. This drops to 20% for the financial year starting 1st April 2015.

6. Don't miss out on £50,000 allowances from 2011/12 & 2012/13.
• Carry forward for 2011/12 & 2012/13 will still be based on a £50,000 allowance. But as each year passes, the £40,000 allowance dilutes what can be paid. Up to £190,000 can be paid to pensions for this tax year without triggering an annual allowance tax charge. By 2017/18, this will drop to £160,000 - if the allowance stays at £40,000. And don't ignore the risk of further cuts.

7. Use next year's allowance now
• Some clients may be willing and able to pay more than their 2014/15 allowance in the current tax year - even after using up all their unused allowance from the three carry forward years. To achieve this, they can maximise payments against their 2014/15 annual allowance, close their 14/15 PIP early, and pay an extra £40,000 in this tax year (in respect of the 2015/16 PIP).
• This might be good advice for a client with particularly high income for 2014/15 who wants to make the biggest contribution they can with 45% tax relief. Or perhaps the payment could come from a company who has had a particularly good year and wants to reward directors and senior employees, reducing their corporation tax bill.

8. Recover personal allowances.
• Pension contributions reduce an individual's taxable income. So they're a great way to reinstate the personal allowance.
• For a higher rate taxpayer with taxable income of between £100,000 and £120,000, an individual contribution that reduces taxable income to £100,000 would achieve an effective rate of tax relief at 60%. For higher incomes, or larger contributions, the effective rate will fall somewhere between 40% and 60%.

9. Avoid the child benefit tax charge
• An individual pension contribution can ensure that the value of child benefit is saved for the family, rather than being lost to the child benefit tax charge. And it might be as simple as redirecting existing pension saving from the lower earning partner to the other.
• The child benefit, worth £2,475 to a family with three kids, is cancelled out by the tax charge if the taxable income of the highest earner exceeds £60,000. There's no tax charge if the highest earner has income of £50,000 or less. As a pension contribution reduces income for this purpose, the tax charge can be avoided. The combination of higher rate tax relief on the contribution plus the child benefit tax charge saved can lead to effective rates of tax relief as high as 64% for a family with three children.

10. Sacrifice bonus for employer pension contribution.
• March and April is typically the time of year when many companies pay annual bonuses. Sacrificing a bonus for an employer pension contribution before the tax year end can bring several positive outcomes.
• The employer and employee NI savings made could be used to boost pension funding, giving more in the pension pot for every £1 lost from take-home pay. And the client's taxable income is reduced, potentially recovering personal allowance or avoiding the child benefit tax charge.
 ‪#‎BeyondBetter‬ @LYNYCC

The Pensions Regulator (TPR) has announced how it has been flexing its muscles under the Pensions Act 2004 for non-compliance by employers

The Pensions Regulator (TPR) has announced how it has been flexing its muscles under the Pensions Act 2004 for non-compliance by employers with their duties under the workplace pensions Auto-Enrolment regulations. This covers the period from July 2012 up to 31st December 2014.

Full details are shown in the attachment below, as taken from the TPR website.

Don’t get caught out! We can help you with your Auto-Enrolment duties. Please phone Bernard Macken on 0113 202 9529 or e-mail me at . Also, please visit our website at ‪#‎BeyondBetter‬

It’s happening - Employer fines for Auto-Enrolment non-compliance!

The Pensions Regulator (TPR) issued 166 penalty notices to firms breaking Auto-Enrolment (A-E) regulations in the final quarter of 2014, an increase from just three fines in the previous quarter.

TPR’s latest quarterly update on its investigations into A-E reveals it served 166 firms with £400 fixed penalties for failing to comply with an unpaid contributions notice or a compliance notice in the last three mo...nths of the year.

The fines totalled £66,400 and compare to three penalties in the third quarter of 2014 – the first TPR had issued for A-E non-compliance.

There was also a surge in the number of compliance notices issued, with TPR handing out 1,139 in the final quarter of the year, compared to 163 in the third quarter.

Approximately 30,000 medium-sized employers who had staging dates between April and July reached their deadline to complete their declaration of compliance by the start of December 2014.

TPR director of auto-enrolment Charles Counsell says: “My message to all employers is that failing to declare within five months of your staging date means you risk being fined, which is why we recommend you start your Auto-Enrolment planning and preparation 12 months before staging.
It appears some medium employers waited for a prompt from the regulator before completing their auto-enrolment duties.”

TPR says that with A-E being rolled out to large numbers of small businesses in the coming months, it expects to see a further increase in the number of firms which leave it too late or do not comply with the rules.

Don’t get caught out! We can help. Please phone Bernard Macken on 0113 202 9529 or e-mail Also, please visit our website at . ‪#‎BeyondBetter

Everyone wants to go to Heaven, but ……….

Whilst it is good news that the UK population is living longer, the dark underbelly is that increasing numbers of the elderly are in poor health. This puts a strain on their retirement income as the costs of care mount. So whilst Auto-Enrolment means that more people are saving in a workplace pension than ever, the demands on income in retirement are also increasing.

With this in mind, it is difficult to argue with Phil Loney, CEO of Royal London Group, when he said:
“The Turner Commission took a long term view of pension reform and created a political consensus over what should be done to get the UK population saving for retirement. Those changes are being successfully implemented. However the revolution brought about by
the “freedoms” announced in the Budget means that a similar long term approach must be taken over the ways people can access that pension and convert it into an income. At present, policy around retirement planning is becoming too short-term and “political”. There is nothing to stop a future Government from reversing some of the recent policy decisions on which we are building. This kind of uncertainty can only act as a disincentive for people to save for the future. That is why we are calling for a Commission to look at all aspects of later-life financial provision, and to provide a basis for a lasting political consensus.

The Government has recognized that the retirement income options that people will face are now very complex. That is why they guaranteed a “Guidance” session for all approaching retirement. But we know that’s not enough. The complexities of tax, means testing and
inheritance planning mean many people will need regulated financial advice to get the best from these reforms. For most people this advice is unavailable or unaffordable. There needs to be a fresh look at how we can make financial advice more affordable and available for the wider general public. Access to financial advice should not be a privilege that is only affordable for the well off.

Increasingly the ageing population will need long term or residential care. We have yet to crack the problem of how this care is funded. With increasing age people become vulnerable and cannot take their own financial decisions safely. The number of people suffering from
Alzheimer’s is set to increase from 850,000 today to 2 million by 2051. Regulators are alert to the issue of vulnerable consumers but so far with little action.

The Commission we are calling for could look at these issues perhaps recommending that whenever someone makes a Will they must not only appoint Executors but also appoint someone with Power of Attorney over their affairs in the case of mental incapacity. The only way we can resolve issues such as advice and long-term care is to consider them away from day to day politics. These issues are long term and many of the required solutions may be considered politically unpopular.

We are aware that others have been calling for a pension commission for similar reasons but we believe it’s essential that all the issues impacting the financing of later life are considered together, not just pensions. Only then can a coherent, sustainable strategy be developed which policymakers and industry can deliver together and that will enable the British public to save
with confidence for their long term futures.”

Increasingly, it will become the case that assets built up over a lifetime, such as the home and other investments, will be required to fund people’s later years, rather than being viewed as an inheritance for future generations. However, good forward planning can alleviate some of the problems.

PIP can help. Phone Bernard Macken on 0113 202 9529, or e-mail him on
Also, please visit our website at ‪#‎BeyondBetter‬