Pensions – ‘no news is good news’, well almost!
When it comes to pensions, the 2021 Budget is a case of ‘no news is good news’ – well almost!
For accumulators, there is no change to the level of tax relief available on contributions, no change in the Annual Allowance that governs the amount you can pay into your pension, and for the highest earners, no change to the more generous thresholds introduced this year before the Annual Allowance is reduced.
If you are an adventurous investor, the good news is that the range of permitted investments allowed is set to include more ‘high growth’ investments to help the country’s investment-led recovery.
And if you haven’t taken benefits yet, your future entitlement to take up to 25% of your pension as a tax-free pension lump sum remains up to your lifetime allowance.
On top of this the ‘Triple Lock Guarantee’, which guarantees a minimum increase to the State Pension of 2.5%pa was left unscathed, for the time being at least.
Are pensions left untouched then? Well almost, apart from the freeze on the annual increase to the Lifetime Allowance (LTA) for the next 5 years with immediate effect.
The LTA was set to increase by 0.50% to £1.078M on 6 April. Losing out on similar increases year on year until 2026 could result in an additional tax penalty of close to £15,000 for pensioners with benefits exceeding this lifetime limit.
And if inflation picks up in the next 5 years, the real cost may be higher.
Despite this change, I can see pensions becoming more attractive to business owners looking to extracts profits and escape the increased rates of Corporation Tax.
Add in the continued shelter from Capital Gains Tax and the potential to pass on assets free from Inheritance Tax, Pensions still remain the most tax efficient form of retirement provision.
We will be regularly updating the Budget pages of our website. If you would like to discuss the implications, please don’t hesitate to get in touch. Alternatively, book your place on our Budget question time webinar on Friday 5 March 2021 to find out more.
The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.
You should not rely on this information to make, or refrain from making any decisions.
Always obtain independent, professional advice for your own particular situation.
Kreston Reeves Financial Planning Limited, Independent Financial Advisers. Authorised and regulated by the Financial Conduct Authority.
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