The world of pensions can sometimes feel like a bit of a minefield for business owners and investors. The latest budget cut the tax relief of those who use the ‘money purchase annual allowance’, reduced the ‘pensions annual allowance’ for high earners, reduced the ‘pensions lifetime allowance’ for all and also reduced the tax-free dividend allowance in a move that will impact around 7% of retired workers (approximately 2.2 million people). These changes will force some people coming up to retirement age to alter their plans – the way to ensure that they get back on track as quickly as possible, as well as avoid hefty tax bills from HMRC, is to seek professional advice. Financial Planners such as myself not only help navigate the ever-shifting landscape of legislation, we also advise the best course of action should personal circumstances change. However, most people coming up to retirement do not seek help and are missing out as a result.
According to a study from LV, six out of ten people aged 55 do not seek financial advice before they retire, with 15% believing that help from the experts would be too expensive for them to afford. Research from Citizens Advice in 2015 showed that 48% of people approaching retirement are not confident that they will have enough money in their pension pot to give them the standard of living that they are hoping to achieve.
However, for those willing to hire professionals, the benefits are clear. Taking financial advice reportedly helps UK savers with a pension pot of £100,000 save an average of £98 more each month, leading to an additional income of £3,654 for each year of their retirement. It’s clear that there’s a massive opportunity to help future retirees, and the UK Treasury has acknowledged this by announcing the Pension Advice Allowance at the Autumn Statement 2016.
From April 2017, you’ll be able to take up to £1,500 out of your pension to seek financial advice. And the great news is, these withdrawals will be tax-free regardless of an individual’s income. So everybody can seek guidance with regard to their wealth management without having to face a penalty (under the current tax rules, this would be considered an unauthorised payment and could incur up to a 55% tax charge). As well as advice, this money can also be used for any implementation or administration costs.
Anyone of any age can make use of the new Pension Advice Allowance (PAA), whether they’re just starting to plan their pension, or are getting closer to retirement. You can withdraw this money in three £500 instalments (one per tax year), and choose whether you want to use an online wealth management system or would prefer to have a conversation with a real person, face-to-face. However, the PAA is only available for those with defined contribution (DC) pensions, or hybrid pensions with a DC element – final salary and defined benefit schemes are not included.
Making the most of this allowance will give you peace of mind if your circumstances change or new legislation comes into effect that could impact your plans. The news seems to be full of changes to pensions and retirement at the moment, so even the best-laid plans could do with a review every now and then to see where you stand. With information constantly shifting, the best route may not always be obvious – speaking to a professional will help you avoid any financial pitfalls.
Whatever your ambitions are for your retirement, the Quadrant team are here to make sure that you achieve your goals. For over twenty years we have worked with a diverse client base, on a range of different financial issues, so no matter what stage you are in life, we can help you save, spend or invest your hard-earned cash in ways that will enable you to have the lifestyle you want.
If you would like more information about how financial planning can help you to achieve your financial goals, please get in touch.
This article does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections.