Before the March Budget
The news this week has sent pension holders into turmoil as many now fear that the 25% tax-free lump sum, currently available on all pension pots, could be removed by the Chancellor in the March Budget. The former minister announced that this could be the next step by the government on recouping money back to The Treasury.
What you need to know.
Possible changes to pension tax
Mr Webb, former minister, who had worked on pension strategy with the Chancellor, George Osborne, spreads fear amongst pension holders as he warns of a possible “extinction” to the 25% tax-free pension allowance in this year’s March Budget, which is just around the corner.
He suspects the government have a bombshell to drop that could affect thousands of people, although he has clarified that it is highly likely to not affect existing pension pots, as this would be “political suicide”.
Should you take your 25% pension now?
Since the Pension Reform, it has been possible for over 55 year olds to take 25% of their pension fund completely tax free, a perk that already thousands of pension holders in the UK have been enjoying.
Whilst the future can’t be predicted, and at times the government do make unexpected announcements during their annual Budgets and Statements, it is not considered necessary to rush to withdraw your pension, especially if you were not planning to do so for a while yet.
The more likely outcome for pensions in the Budget
What experts are considering more likely, is that the pension tax system will change to something like that of ISA’s, where money is taxed on the way into the pension pot, but withdrawals are tax free.
Under this system, for future savings, there would then be no entirely tax free-element.
This new pension system, if it ever comes to light, would result in £4billion in lost revenue, so the government are certainly incentivised to make changes that will go towards filling their 2020 deficit goals.
However, for pension savers, this could be a disappointment as currently using a pension is highly tax efficient and extremely popular as part of a retirement plan for doctors and dentists.
Topping up your pension now
Rather than rushing to take your 25% lump sum now, an alternative is to top-up your existing pension, where-by you can claim the tax relief on the contributions, and, add to the 25% tax-free element of your pension pot, which is likely to remain tax-free when you do come to draw it in the future.
Speak with a financial adviser about your options.
New pension legislation from April 2016 regarding the Lifetime Allowance (LTA), dictates that the maximum pension investment in a lifetime is falling to £1 million, down from the current amount of £1.25 million. This could affect some decisions on the next steps as well.
Read more – How the Lifetime Allowance affects your pension
Dental & Medical Financial Services are here to answer all your pension questions, as pension regulations are changing all the time. Call today and ask for Darren.
Tel: 01403 780 770