With the Chancellor apparently having very few options to raise additional tax revenue, it has come as no surprise that SIPPs and all personal pensions have come under attack in this year’s Autumn Statement
Less tax relief will be available as contribution levels are slashed
The annual allowance for SIPP and personal pension contributions will drop from £50,000 to £40,000. Speculation that a new annual allowance of £30,000, that would have applied immediately, had been suggested.
So, in a weak attempt at putting a positive spin on this, the reduction to £40,000 which won't be introduced until the 2014/15 tax year, is not as bad as it could have been.
As with everything to do with pensions, time is running out. You have sixteen months to take advantage of the current annual allowance of £50,000. In fact, using the carry forward provisions, it's possible you could contribute up to £200,000 gross, and receive tax relief at your highest marginal rate. That's a staggering £100,000!
If it's possible, do it now, for £100,000 is a huge sum to pass by.
Get in quick because tax relief falls in April 2013
Whilst no changes to the level of tax relief on personal contributions was mentioned in the Autumn Statement, it's worth remembering that the current maximum rate of Income Tax is 50%. If you pay tax at this level, you'll continue to get the corresponding amount of tax relief on your SIPP and personal pension contributions paid from now until 5 April 2013.
On 6 April 2013, if you haven't made your contributions, your tax relief will be cut to 45%, costing you £10,000. That's a pretty decent holiday up in smoke if you miss the deadline.
Some surprisingly good news for those in retirement
If you're approaching retirement, or you're in retirement, you'll be interested in this.
Perhaps the biggest SIPP and pension-related surprise in the Autumn Statement was the announcement that the maximum income you can receive from Capped Drawdown will increase from 100% to 120%.
The SIPP industry has been lobbying to the Government to look at drawdown rules introduced in April 2011, which saw the maximum income for Capped Drawdown dropped from 120% to 100%. This, along with a record low 15 year Gilt Yield and investments savaged by global economies, saw maximum income levels significantly reduced when they were reviewed.
However, whilst this is great news, it's not immediate relief for those in Capped Drawdown as a date is yet to be set as to when the 120% limit is introduced. The Government suggests that draft legislation will be in place prior to next year’s Budget but is then it will be subject to consultation between the industry and HMRC.
AMPS, the representative body for SIPP and SSAS practitioners has already announced that it will be surveying its membership shortly regarding the introduction of the new limits.
Your overall SIPP fund limit is set to fall
The Lifetime Allowance will reduce from £1.5m to £1.25m from 2014/15. This was not a widely anticipated move, but perhaps one that was introduced to offset the smaller than expected reduction in the annual allowance.
The Government has suggested that a type of protection will be offered to those individuals caught between in the £1.5m to £1.25m bracket, which will be similar to fixed protection which was introduced when the Lifetime Allowance was reduced from £1.8m. However, another type of protection adds a further layer of complexity in an area where three other types of protections exist. It is perhaps for this reason that it was also announced there will be consultation to offer a “personalised protection regime for individuals”.
Pension simplification - I don't think so
On 6 April 2006, or 'A' Day as it was referred to in the wonderful world of pensions, the Government of the day promised a far simpler pension regime. It seemed to work for a while. But with the few comments above, representing a tiny fraction of the total pension industry, it seems that things are becoming ever more complicated again.
It comes as no surprise then the Financial Conduct Authority, under its Retail Distribution Review, is requiring all financial advisers to achieve a higher level of qualification from the start of 2013. Take note. If you move your pension funds around without advice, unless you're highly qualified, you're adding a massive risk to your retirement prospects.
Without any shadow of a doubt, you should never transfer your pension funds to a SIPP or any other sort of pension without a detailed review from a licensed and qualified professional. And you should really continue with that advice throughout your life. Yes, it costs money. But from 2013, you'll know exactly to the penny how much, which is a positive move. However, it can be demonstrated that the cost of fees is often more than made up with fund growth as a result of professional advice.
With this in mind, so you don't miss out on the above changes, contact your financial adviser today and discuss your SIPP. Time really is money.
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Over time, charges can wipe out a huge part of your fund. We like AJ Bell because there are no set-up costs. If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund. And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment). However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.
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