Tax, pensions, and politicians

Getting to grip with life policies


As pension reform continues, there is a new protection option to consider along with fresh threats to the future of tax relief.

Individual Protection, a new option to protect your pension benefits from tax, is now available. On 6 April 2014 the lifetime allowance, which effectively sets the normal maximum tax-efficient total value of your pension benefits, was cut to £1.25m. Individual Protection allows you to keep a lifetime allowance equal to the value of your pension benefits on the day before that reduction, subject to a maximum of £1.5m.

To be eligible to claim Individual Protection:

  • Your pension benefits on 5 April 2014 must have had a total value exceeding £1.25m; and
  • You must not have already chosen Primary Protection.

If you are eligible to claim Individual Protection, you should discuss the option with us before taking any action. An early start makes sense, as gathering the values of your pension benefits can be a slow process.

The tax treatment of pensions

How pensions generally are taxed looks set to return after next year’s general election. The current pensions minister, the Liberal Democrat Steve Webb, has called for tax relief on pension contributions to be at a flat rate of 30%, while the Labour Party is also talking about restricting tax relief to basic rate for some high earners.

As yet the Conservatives have said nothing about future plans for tax relief. However, the Centre for Policy Studies (CPS), a think tank with links to the party, has proposed scrapping tax relief completely and replacing it with a Government top up of 50p per £1 of savings, up to a maximum of £8,000 annual savings.

Contribution tax relief is one of the few remaining ‘low hanging fruits’ for politicians who are anxious to raise revenue with the minimum amount of public outcry. In other words, if you are planning to make a large pension contribution, it seems wise to consider doing so before the polls close. This is a complex area of retirement planning and you should seek financial advice so individual circumstances can be considered.

The value of tax reliefs depends on your individual circumstances. Tax and pension laws can change. The value of your investment and the income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Any levels and bases of, and reliefs from taxation are subject to change.


Go back to the full list of articles

The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.