Person centred planning – changing pension regulations

Author: Mike Fosberry, James Kirk (

Categories: Personal Finance, Tax Planning
Tags: government, Pensions, tax
In this TV show Smith & Williamson's Mike Fosberry discusses navigating through changing pension regulations for person centred planning.

Person centred planning - Pensions

The important part of it is that they are very tax efficient investments. You get full tax relief on input into pensions and the funds grow in a tax exempt environment. So from the perspective of building up long term funds for your retirement, it's obviously a starting point. Having said that, the government has been taking quite significant steps ever since 2006 when pensions simplification and simplification, it's anything but simple quite honestly because ever since then we've had a raft of pension changes which has really restricted the attractions of pensions investment for many people. It's happened in two particular ways, firstly the amount of contributions that people can put into pensions has been seriously restricted. So for example, in the old days you used to be able to pay large contributions to catch up past pension rights on the basis that you've received an inheritance or something of that nature. Going forward we are seeing pension contributions currently are restricted to a maximum of £50,000 per annum, from next year that's going down to £40,000. We're also seeing a cap on pension fund limits so currently we have a cap of £1.5 million of value in terms of the maximum pension fund you accrue. You can't draw on that pension fund before you're age 55 under the current rules but that cap is now being reduced to £1.25 million. So a lot of people who are currently saving for pensions for the long term, may be in a situation unknowingly almost where they're going to hit one of these cap. And the penalties are actually quite severe because if you exceed the cap, the tax rate on any excess is 55%. So a lot of our planning at the moment is trying to help people in that situation and to look at where they might be in the future. And a lot of the way basis of valuation of pension funds is actually quite arbitrary. So if you're a member of a defined benefit pension scheme which is promising to pay you a pension when you retire, that's valued from a capital perspective on a multiple of the value of the pension 20 times the pension. What basis that has to reality, who knows. But some treasury mandarin obviously came up with this idea. If you have a money purchase scheme, it's based on the size of your pot when you come to draw benefits. So a lot of people in their early 40s who may have what they considered to be relatively modest pension funds, if you think about future investment returns plus contributions going in, they could very easily test those caps in the future. _________________________________________________________________________ If you found this video about Person centred planning interesting why not watch more TV shows on Inside Finance?
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