Newspaper article The Journal (Newcastle, England)

Don't Be Caught out by Changes to Pension Rules

Newspaper article The Journal (Newcastle, England)

Don't Be Caught out by Changes to Pension Rules

Article excerpt

ONE million sounds like a large sum out of reach for most savers. This is how much you can save into your pension, including the growth on those funds, before you lose the tax advantages offered by pension savings vehicles.

Would you really be affected though? Lowes' experience helping people with their retirement planning has shown how important consistent financial planning is to take consideration of changes in circumstances or new regulation.

Final salary schemes, as well as personal pensions, are counted towards the lifetime allowance and public sector employees, such as doctors or teachers, could be surprised that they are affected by the coming rule change.

Do you know what pensions you have and how much they are worth? This may be difficult question if you've been in a public service role for quite some time.

The lifetime allowance reduces from PS1.25m to PS1m on April 6 and this is tested each time you access any of your pension, such as taking a tax-free lump sum, buying an annuity or starting to withdraw an income.

A penal tax charge of up to 55% applies on the excess over the lifetime allowance.

The rules are more easily explained on how your lifetime allowance is worked out through the following case study.

A doctor for the NHS is in the final salary scheme that will pay him PS40,000 a year. This is multiplied by 20 to arrive at the "value" of this pension, equating to PS800,000. His tax-free lump sum due of around PS160,000 is in addition to this, while the saver has also been paying additional voluntary contributions now worth PS100,000.

Adding these individual elements, gives us PS1.06m, which is over the new lifetime allowance.

While the doctor could apply for "protection" to avoid being penalised for having too much, he would have to waive future accrual rights to the NHS pension scheme, effectively meaning that he would be working for less in the years to come. …

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