Serving the Teesside Business Community | 21
PENSIONS
TIME BOMB
FOR HIGH
EARNERS
Vintage partner Steven Hodgson has issued
pensions advice for Teesside’s high earners.
The clock is ticking for Teesside’s business owners and high-earners to take advantage
of a pensions investment opportunity before the door slams shut in April 2016.
O
ver the course of his last three
budgets George Osborne has
introduced several radical and
dramatic changes to the rules on
pensions. Some for the better and some not
necessarily so.
While the Chancellor’s decision to give
open access to our pensions has won plenty
of headlines, experts at a Teesside financial
firm are calling on high-earners to act soon to
avoid falling foul of one of Mr Osborne’s less
well-publicised pensions amendments.
Vintage Chartered Financial Planners
provide tailored financial advice to clients
with a combined £80 million asset base, with
many of the Stockton company’s 500 clients
classed as high net worth individuals.
Partner Steven Hodgson is advising many
of his clients to take action now to protect
their financial assets ahead of next year’s
significant changes.
The best publicised change introduced
by Mr Osborne concerns the new pension
freedoms, with anyone aged 55 or over now
given unrestricted access to their pension
fund.
“Where previously they could take only
25% as a lump sum, they can now draw
down the whole pension pot or, if they
prefer, draw it in stages,” said Steven. “That
freedom has certainly made pensions more
attractive, although it should be borne in
mind that only the initial 25% is tax free, with
any amount over this being taxed as income.
“Another less publicised but equally
welcome change affected the tax charges
on death. Under the old rules, once you’d
starting drawing from the pension fund,
the residual fund was subject to a punitive
55% tax charge on death before age 75. Mr
Osborne didn’t just reduce that tax charge,
he scrapped it.
“That part of your pension isn’t part of
your estate so it isn’t subject to inheritance
tax. So the pension fund is now essentially
an investment vehicle that is free of any
underlying taxes – no income tax on interest
and dividend income, no capital gains tax and
no tax on death before age 75 - and we have
unrestricted access from the age of 55.
“So a pension is now much more attractive
as a savings vehicle than it ever was.”
But it’s not all good news.
It went under the radar, but the Chancellor
also announced that, with effect from April
2016, the ‘lifetime allowance’ - the maximum
an individual is allowed to accumulate in their
pension fund – will be capped at £1 million, a
reduction of £250,000 on its current level.
But it’s another new restriction, one that
will affect those with earnings in excess of
£150,000 a year, that Vintage are keen to
highlight. Currently the ‘annual allowance’,
which is the maximum that can be paid into
the pension each year, is £40,000. Under
the new rules, the annual allowance will be
scaled back for high earners