A summary of the latest pension rules and general guidance Rules General guidance and ...

A summary of the latest pension rules and general guidance Rules General guidance and ...

6 Pages · 2015 · 484 KB · English

Consideration should be given to (i) structuring earnings to efficiently utilise allowances, where possible (e.g. drawing dividends and less salary), (ii) making higher pension contributions when income is at lower levels, which may also assist in mitigating the tax trap caused by the loss of perso

A summary of the latest pension rules and general guidance Rules General guidance and ... free download

A summary of the latest pension rules and general guidance Following the announcements in the Budget on 19 March 2014, that investors were to have complete access to their defined contribution pension assets, and by the Chancellor on 29 September 2014 at the Conservative Party conference, that the pensions death t ax would be abolished, the Taxation of Pensions Act became effective from 6 April 2015 In addition, further changes were announced in the Summer Budget on 8 July 2015 The purpose of this note is to summarise the main pension rules in terms of the contribution and benefit limits, the treatment during the accumulation phase and the exit options (including death benefits) , matters which should be considered for any investment , and to provide our general guidance and comments Rules General guidance and comments 1 Contributions 11 Annual allowance – the maximum annual contribution to a defined contribution pension scheme or the maximum deemed benefit accrual in a defined benefit pension scheme is £40,000 Total pension inputs exceeding the annual allowance will be subject to a tax charge at the investor’s marginal rate s of income tax The annual allowance may be restricted in certain circumstances – see 17 and 1 8 below Contributions should be maximised Subject to total pension benefits not exceeding and not being expected to exceed the lifetime allowance, higher and additional rate taxpayers should maximise contributions to benefit from the creation of an income producing pension fund at a cost of only 40p in the pound (additional rate taxpayers) or 47p in the pou nd (higher rate taxpayers) The equivalent figure for basic rate taxpayers is 73p in the pound The annual allowance will reduce for high earners ( with income above £150,000 per annum) from 6 April 2016 , as noted in 17 below , and affected individuals sh ould therefore give particular consideration to maximising contributions prior to the implementation of the new rules 40p in the £ Cost Benefit in pension fund Gross amount £10,000 £10,000 Tax relief at 45% £4,500 Net cost £5,500 PCLS £2,500 £2,500 Final cost/benefit £3,000 £7,500 Equivalent to 40p £1 Note: the pension commencement lump sum (PCLS) will not be available until benefits are taken The example demonstrates overall tax efficiency and excludes investment returns and charges Pension input perio ds have been simplified From 8 July 2015, pension input periods have been aligned with the fiscal year, which should make it easier to determine how much annual allowance has been utilised, and how much is available to be carried forward into f uture years It is , therefore, not now possible to manoeuvre input period s to maximise contributions in a particular tax year Consider salary sacrifice It may be possible to forgo salary to receive an additional employer pension contribution or de fined benefit pension and is highly tax efficient if the employer passes on the 138% saving in National Insurance Contributions The Chancellor is though considering reforming pension tax relief , which may restrict the use of salary sacrifice in future Take care auto enrolment Compulsory auto enrolment into workplace pensions already applies to large companies and will apply to the employees of all companies by 1 April 2017 It is essential to take account of workplace pension payments when planning a contribution strategy , including the potential loss of pension protection (see 24 below) C ontributions can only be refunded if the opt out occurs within one month of joining 12 Tax relief – can be claimed at an individual’s marginal income tax rate s (up to 45% for an additional rate taxpayer)

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