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Prior to the recent budget the doom and gloom merchants of the Press gave dire warnings of the end of higher rate tax relief on pension contributions.

         Indeed, this widely expected change reflected a growing disquiet about a tax perk that enables only the ‘better off’ to benefit. However, our Darling Chancellor chose not to effect such change across the board preferring instead to aim at those with income from various sources of over £150,000.

 

The main points contained in the Budget are as follows: 

·        Higher rate tax relief remains on pension contributions for anyone with income of less than £150,000

                         

·        From 6 April 2011, tax relief on pension contributions will be restricted to 20% for those people with income over £180,000

 

·        From 6 April 2011, higher rate relief will be reduced for those people with income between £150,000 and £180,000

                         

·        In the meantime, individuals with income of £150,000 or more will continue to receive higher rate tax relief on existing monthly contributions

                         

At the time of writing I do not have details of the position from 6 April 2011 onwards, other than the statement that:

 

In the meantime, individuals with income of £150,000 or more who have not made any pension provision will continue to receive higher rate tax relief on contributions of up to £20,000pa

 

Although many higher rate tax payers will breathe a collective sigh of relief at the above the continuing turmoil in the financial world has affected us all, and for those that invest for retirement there have been a whole array of challenges.  For people with existing pension funds, or those contemplating retirement planning, two key issues dominate: on the one hand, volatile global stock markets have caused a slump in the value of many pension funds, which has hit those due to retire in the short to medium term.  Simultaneously, retirement funds are coming under increasing pressure because the majority of us are living longer.

 

          In 2006, new rules on pensions were introduced. A new single, simple system was introduced making it easier to plan for retirement.  This has proved a blessing; with volatile markets and increasing life expectancy, never before has it been more important to consider some serious retirement planning.

 

However, increased longevity and changes in retirement lifestyles have piled pressure on pension funds.  In 1981, a person’s pension was expected to last 16 years but now that pot of money needs to last for 22 years. (Source: Government Actuary’s Department – January 2009.  Assumes pension benefits commence at age 65.)

To put this in context, a pension fund of £100,000 provided an annual income of £6,250 in 1981, yet to achieve the same annual income today would require a pension fund of £137,500, an increase of more than a third. (Source: Institute of Actuaries, Annuitant Mortality Tables.)

 

         With this and the recent slump in pension fund values, a re-focus on retirement planning is essential. The golden rule is to find out exactly how much you are going to need in retirement – and to start planning for it now.

Decisions made now will dictate the lifestyle that can be enjoyed in retirement.  The earlier you start making those decisions, the easier it becomes to create the retirement lifestyle you want.

For an informal chat about having the lifestyle you want in retirement please contact Jeremy on 07980 839139 or email jwh@sjpp.co.uk