Millions of savers are about to get walloped by pension tax changes that could slash their retirement savings by tens of thousands of pounds.
High earners in particular are being warned to overhaul their arrangements and bung as much into their pensions as possible up to current tax limits, to avoid losing valuable benefits before the Budget on 16 March. The big threat is that Chancellor George Osborne will introduce a ‘flat rate’ system, under which all taxpayers receive the same level of pension tax relief regardless of how much they earn – ditching the principle that everyone saves for retirement from untaxed income.
Meanwhile, previously announced measures also mean dramatic cuts in how much the better off can save, both annually and over their lifetime, without having to stump up tax.
Although the system is designed to affect the wealthiest households, experts have warned that it will punish the most prudent, including some middle managers, senior nurses and small business owners. Analysis for the Daily Mail earlier this week suggested that as many as 1.5million savers – some on modest salaries – could be caught out by the lifetime cap alone.
There are nearly 4million people in the UK who pay income tax at the 40 per cent or 45 per cent rates and nearly 26million who pay the basic rate of 20 per cent, according to data from the Office for National Statistics in January 2015.
We explain below what is happening to pensions, who will be hit, and what can you do to mitigate the damage. But deciding the best course of action will often be a matter of fine judgement, depending heavily on your personal circumstances.
Most well-off people tend to get financial advice, but if you don’t and these pension changes affect you, it would be sensible to get professional help ahead of the Budget.
Tags: savers
This entry was posted by John on Friday, January 22nd, 2016 at 1:44 pm and is filed under Pension news.
