News Archive - January 2011
Happy New Year!
01/01/2011
Happy New Year to all Mulberry customers.
If you want any financial advice, give Mulberry a call.
All change for pensions - again!
21/01/2011
The limits applying to pension contributions are changing – again. A couple of recent changes have unleashed rafts of complicated rules to prevent high earners from pouring large sums into their pensions while the new rules were finalised. Now they have been – and thankfully they are fairly straightforward at first viewing.
From 6 April 2011 the limit on pension contributions will be £50,000 per annum. This includes any personal contributions and those made by an employer. Any contributions over this amount may be subject to a tax charge.
For money purchase schemes (like personal pensions), it is easy to quantify the level of contributions in a year. For final salary schemes it is less straightforward – the value of the pension at the start of the year (inflation adjusted) is compared with the value of the pension at the end of the year. The increase in the value of the pension is multiplied by 16 to get a notional value for the increase in the value of the benefits over the year.
In practice, this means that some final salary scheme members with high salaries will exceed the annual limit and become liable for extra tax charges if they remain in the scheme. These tax charges remove any tax relief granted on contributions over £50,000 – which means that pensions have become less attractive as savings vehicle for very high earners, because they get limited tax relief on the way into the scheme, but then pay income tax on the pension when it is withdrawn.
One added complexity is the re-introduction of ‘carry forward’ whereby unused relief from up to 3 previous tax years can be used to exceed the £50,000 limit. For example, a person who has never paid into a pension before 6/4/2011 would be able to pay in a total of £200,000 gross in the 2011 tax year (£50,000 plus a further £50,000 from each of the previous 3 years). This could be a useful tool for those whose earnings fluctuate, as it can allow a particularly large pension contribution in a profitable year, which would otherwise have been subject to high levels of income tax.
As usual, these changes will have little or no effect on the majority of people. However, if you want us to review your current position, just give Mulberry a call.
The material here is for general information only and is not intended to be relied upon for individual investment decisions. Appropriate independent advice should be obtained before making any such decisions. Mulberry Financial Ltd does not accept any liability for any loss suffered by any user as a result of any such decision.
The information is based on our understanding of current HMRC rules and practices (as at the news article date) which are always subject to change. Taxation and trust advice and Cash ISAs are not regulated by the Financial Conduct Authority. This site is aimed at UK residents only.
Please remember that the prices of shares and other investments can fall sharply. You may not get back the money you originally invested. Past performance is not necessarily a guide to the future.
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