You might be able to save thousands of pounds for your SIPP by acting NOW, ahead of forthcoming pension changes in the March 2016 Budget.
The March 2016 Budget Could See Even More Changes To Pensions
SIPP Things To Do Before The March 2016 Budget
To make the most of your SIPP, you need to get to grips with all the pension changes that have already happened. And because some further changes could be announced in the March 2016 Budget, it could literally be worth thousands of pounds to you if you take appropriate action NOW.
The New Pension Freedoms And Rules Changes
How To Avoid The New Pension Trap For High Earners
Could You Invest Up To A Further £40,000 Now?
Lifetime Allowance: How To Protect Yourself
More SIPP Changes?
2015 saw huge changes in the world of pensions. Pension freedoms now allow people to spend their pension funds how and when they like, from age 55. Well, that’s the theory, for many people have found that accessing their money hasn’t always been straightforward. Some companies want people to take advice and pay for the privilege before they can get their hands on their cash. Others simply can’t cope with the volume of requests. And more still have imposed charges and penalties, sometimes running to more than £1,000!
If 2015 was revolutionary enough, there are more pension changes coming down the line in 2016. The new flat rate State Pension will be introduced at £155.65 per week, tax relief will be cut for those on the highest incomes and Lifetime Allowance is being reduced to £1 million.
In another change, pensions have become available to millions of people for the first time, through auto-enrolment in the workplace, though what that weirdy giant character on the TV adverts is about is a complete mystery.
Further Pension Changes That Could Be Announced In the March 2016 Budget
Cuts To Tax Relief On Pension Contributions
Pension tax relief is one of the most generous tax breaks available. It costs the Government around £34.3 billion every year. Given the country’s need to save money, it’s entirely possible that tax relief on pension contributions will be reduced, or even abolished completely. The Government commissioned a consultation on pensions tax relief in 2015 and the Chancellor has said the changes will be announced in his March 2016 Budget.
The consensus seems to be the rate of relief will be reduced to a flat rate of between 25 and 30 per cent. Currently, you qualify for tax relief at your "marginal rate", the highest effective rate of tax you pay, which can be as much as 60 per cent in some cases, but is normally 45 per cent, 40 per cent or 20 per cent, depending on your income.
Pension Freedoms Made Faster And Cheaper
As thousands of people have been unable to take advantage of the new flexibilities due to rip-off exit fees, lengthy transfer times and a lack of affordable financial advice, the Government has launched consultations in each of these areas and is expected to announce new policies this year, perhaps in the March 2016 Budget. Changes could include a ban or cap on exit fees, a cap on transfer times and cheaper financial advice becoming available.
Pensionable Ages May Rise
Currently, benefits from private pensions can be taken from age 55. However, rises in life expectancy are putting ever greater pressure on us to ensure our pension funds can last for a very long time. A number of experts have suggested the Government may address this problem by setting the age at which you can draw benefits from private pensions at 10 years before State Pension age. The link could be formalised with an announcement, possibly in the March 2016 Budget or later this year.
Final Salary Schemes Could Become Less Generous
At the moment, final salary scheme members and their employers pay a lower rate of National Insurance because they are "contracted out" of the Second State Pension. This comes to an end in April 2016 with the launch of the new State Pension, so everyone is going to experience a rise in National Insurance deductions: 1.8 per cent for scheme members and 3 per cent for employers.
One way employers may decide to avoid these increases might be to adjust the terms of the final salary scheme, perhaps by reducing contributions or the rate at which pensions build up. The knock-on effect could mean smaller pensions for millions of people. Interestingly, now is arguably the best time to consider a final salary transfer, ahead of the March 2016 Budget.
'Second-Hand' Annuity Market Rules To Be Finalised
More than five million pensioners who have bought annuities may be able to swap their guaranteed income for a cash lump sum from April 2017, the Treasury confirmed in December 2015.
The move to create a new "secondary annuity market" is an extension of the Government's landmark pension freedoms. It’s potentially great news for anyone who is stuck with a poor value annuity. But there are still details about how it will work that need to be confirmed, with an announcement some time in 2016.
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