Covid concerns – Should I access my pension fund now?

Covid Concerns – Should I access my pension fund now?

The UK is on the brink of a severe recession, with job losses and cashflow concerns for a large proportion of the country.

You may be thinking of the need to access some of your savings to alleviate large short term worries.  What a lot of people however are not aware of, is the fact that by using your pension savings to plug this gap, may mean that you are not able to utilise this vehicle to save again when the time arises.

Currently, anyone over 55 who makes a taxable withdrawal (not the 25% tax free cash allowance) from their pension will find that their annual allowance for this year and future years will be lowered from £40,000 to just £4,000 as a result of the triggering of money purchase annual allowance (MPAA).

This is a relatively new rule that was brought in 5 years ago with the introduction of ‘pension freedoms’ with an initial £10,000 limit, however it was reduced to £4,000 in 2017.  If the MPAA is triggered future contributions to your pension savings in excess of £4,000 per annum will face a tax charge.

The reasons for accessing taxable income from your pension could be for a variety of reasons like replacing lost income from employment or potentially taking extra income out to help a younger relative pay their bills. Regardless of the circumstances, currently the MPAA is applied indiscriminately and permanently.

If a 90% cut in the annual pension allowance was not bad enough, triggering the MPAA also means you lose the ability to carry forward any unused allowances from the three previous tax years in the current tax year. So, someone making a one-off decision to access taxable income from their pension during the current crisis could in fact reduce the amount they can save in the future into a pension in the current tax year from £160,000 to £4,000.

If you feel that you may still wish to make contributions to your pension savings in the future either personally or through an employer, accessing taxable cash just now may not be the most ideal solution.

I am not saying for one moment that in the current times using your pension to ease cashflow worries is to be completely avoided, however knowing all the ramifications of these decisions is of huge importance.

If you have other forms of savings available like ISAs or bonds, these may not have penalties, or taxation regimes which are quite as strict. It is important to make decisions of this nature with your eyes wide open and with all available knowledge at hand, and not regret a decision made in haste.

Please do not hesitate to get in contact if you feel you would like to know more, or to discuss your options.  We are always available for a remote video conference.



Plan now to avoid a big tax bill on your pension savings.

Are you building a fund for your retirement in a company pension scheme? If so, forthcoming changes to the taxation of pension savings could cost you dearly – unless you act swiftly.

From April, the maximum pensions saving that anyone is allowed to build, before it becomes subject to punitive taxation, reduces from £1.5m to £1.25m. This cap is called the Lifetime Allowance (LTA) and applies to an individual’s entire pension savings (apart from the state pension).

The figure may sound high but many thousands of people fall into the category – especially those in final-salary schemes who have built their entitlement through many years’ work.

But don’t despair, if you are affected, there are actions you can take before April to mitigate the potential tax charge down the line.

Saving into a pension scheme has for years attracted tax relief. However it was felt that wealthy people were getting too much tax relief and building up enormous pension pots and the LTA was introduced at £1.8m in 2012 reducing to £1.5 in 2013 and now to £1.25m in April this year.

It would be a brave man that did not anticipate further reductions in years to come.

When first introduced, the LTA used to apply only to a few thousand high earners in the UK who could afford to grow seven-figure pension pots. But the reduction in the limit, coupled with the increased costs of funding retirement promises for those who retire on final-salary-type pensions, has now pushed hundreds of thousands of people into the net.

There is some key information you need to know or find out quickly!

You need to find out what the total value of your pension savings will be, as at April 2014. This should include any legacy pension schemes with previous employers. If the total is already over £1.25m, or likely to grow beyond that sum before retirement, you can take action to retain the £1.5m LTA, subject to certain conditions.

If you are in a final salary scheme and expect to receive a pension in excess of £56,000 on retirement, this could take you over the LTA and should prompt you to take action now.

As ever HMRC have produced detailed guidance on the changes and impacts (see link below) but if you need assistance to understand the impact on you then please get in touch.



Budget 2013

George Osborne budget

George Osborne revealed his mid-term budget on Wednesday 20th. Here is our summary of the most relevant points for your future financial planning:

Inheritance tax – As mentioned in our blog recently, the amount of an estate that can be passed to the next generation tax free will remain at £325,000 until April 2018 (anything above being taxed at 40%). Another 5,000 estates are expected to become taxpaying estates by this time. If this is you, careful use of allowances today can reduce your bill.

State pension – this will rise by 2.5% to £110.15 per week. The Basic State pension and State Second Pension will be combined in April 2016 to a flat £144 per week (in today’s money). This should make it easier to plan for the future.

Pension drawdown – From Tuesday 26th March capped income drawdown rates will rise from 100% to 120% of GAD. While this could be useful for those of you that need more income, please be aware there is no guarantee your pension fund can sustain this. GAD is also set to be overhauled which should lead to good news in the future.

Capital gains tax allowance – the amount of gains that you can make on disposal of assets before having to pay tax increases to £10,900 for 2013/14. The rate remains at 18% for non and basic rate taxpayers, 28% for higher rate taxpayers.

ISA (tax free savings vehicle) – The stocks and shares ISA allowance will be £11,520 and the cash ISA allowance will be £5,760 in 2013/14. Please contact us for details of how you could use these depending on your circumstances. If you are yet to use your £11,280 allowance for 2012/13 contact us ASAP!

Income Tax – The personal allowance, currently £8,105, will increase to £9,440 in April this year and then £10,000 in April 2014.

Pension allowances will be cut next year – Personal annual contribution allowance down from £50,000 to £40,000 and lifetime allowance down to £1.25m.

Abusive tax avoidance – The Government will publish a report on how it will tackle tax avoidance and evasion this week. Needless to say, any tax mitigation strategies recommended by OAM are not abusive and are a key part of good financial planning.

That concludes our non-exhaustive list of points to be taken from Wednesday’s budget. The above points are based solely on our understanding of intended HMRC rules and should not be used to influence planning decisions on their own.

If you are a current client and require any clarification on how the above might affect you then please get in touch.

If you are not, then we would be happy to give you a second opinion on any aspect of your planning. There’s never been a better time to contact us.

Malcolm Stewart


EU Gender Directive – 49 days to final deadline – will your pension be affected?

Well once again it’s time to note the fast approaching EU Gender Directive deadline – 21st December 2012.

Since we last covered this we’ve had a good response from clients in terms of reviewing their existing cover and in some cases getting cover in place which was always part of the overall financial plan but hadn’t been properly addressed.

There is certainly no time like the present to review your current cover or get cover in place if you have been thinking of doing so but just haven’t found the time. If you take out a policy now guaranteed gender specific rates will be available provided the policy is accepted before the 21st December 2012.

Our focus up to now has been on the life and critical illness considerations but this new ruling also has implications for pensions.

On retirement, most people will use all or some of their accumulated pension fund to purchase an annuity. This provides them with a guaranteed pension for life. The amount they receive depends on several factors, including how long they are likely to live.

From the EU Gender Deadline date of 21st December 2012, annuity providers will no longer be able to offer different pension rates for men and women. Traditionally, men have received a higher annual annuity income than women, due to their lower life expectancy. This will not be the case in future. The new Directive is likely to reduce the pension income of men retiring after 20 December this year.

It is estimated that male annuities will be reduced on average by 2% to 4%1 so if you’re male and are close to retirement, it is important you act now to secure your pension. Once the Directive comes into force, you could receive less income in retirement –a case of ‘use it or lose it’.

At a time of historically low annuity rates, it is essential that anyone close to retirement receives the maximum pension available – but annuities can vary widely, and many people find their current pension company may not offer the best deal.

If you are in this position then we can help you review your existing arrangements, search the entire market and recommend the most suitable annuity for you.

We’re pretty sure most pension companies will experience higher than usual levels of activity towards the end of the year as clients rush to get annuity funds released before the deadline, so by acting now, we can ensure you get the best available annuity rate in plenty of time.

If you would like more information on this or would appreciate a face to face discussion with an Adviser on how you may be affected by the deadline then please do not hesitate to get in touch.

You might also find it useful to visit the “Your Retirement Options” section on our home page as this also provides an extensive guide to retirement choices so even if you’re not likely to be affected by the Gender Directive but need to make some retirement decisions soon we can help.

Dr Claire Armstrong


Source: 1 Partnership: Figures are based on the general situation for male retirees at age 65. For enhancements due to lifestyle or ill health, the difference will depend on individual circumstances and could be higher or lower than these amounts.


Automatic Enrolment

In more recent months the trend in our new enquiries has been from small to medium business owners who are not only picking up on the need for business protection but are also now looking into alternative savings for the business liquid assets AND the requirement to provide a company pension scheme under the up and coming automatic enrolment.

If you follow our blogs you will know we’re no strangers to business protection in fact we feel quite passionate about it and more recently we have posted commentary on the structured deposit accounts as an alternative for business cash holdings.  We will no doubt continue to revisit these topics with regularity but for this week auto enrolment is the focus.

Although most employers won’t have their staging date until 2015/16, there’s a lot to do to plan and prepare for automatic enrolment. For example, employers will need to consider the cost implications and make sure the right systems and processes are in place to meet the new employer duties. On average, this could take up to two years so it is important employers start to prepare early and as I would say there is no time like the present.

Scottish Life* estimate there will be around 9 stages to the whole process starting off with Employers reviewing their current pension scheme and comparing it to the new requirements to identify any changes needed. If they don’t have a pension scheme, they’ll need to set one up.

Then it will be on to assessing the workforce to determine which types of worker they employ and the duties they have for each type of employee. Following this it will be time to consider the different scheme options available and how these will impact on the employer’s business and workforce.

When the right solution is designed there will need to be agreement on what this solution means for the business and one crucial factor will be ensuring the employer has the right balance between costs and administration of whatever scheme is to be put in place.

With the right scheme design ready and approved it will be important to then review internal processes, that is payroll and HR, as the employer will need to ensure they comply with the new requirements and can work to help keep the scheme compliant.

Depending on the nature of the business Unions may be involved and they will have to be consulted to ensure there is full agreement on the basis of the scheme or contracts of employment.

With all of these considerations covered it will then be time to implement the changes agreed and to ensure the scheme can run smoothly day to day, the workforce is engaged and provided with the right information at the right time.

The final stage will be to run the scheme and ensure the employers continue to meet their duties on an ongoing basis to remain compliant at all times.

It does seem like a lot of work and a long process but it doesn’t have to be daunting and we are already helping firms to make the first steps into the process so they are in a position to make the right decision for their company in good time without a deadline looming over them.

If you are interested in finding out more and would like to discuss the detail of how this could work for you we would be delighted if you got in touch, no time like the present to take a step in the right direction.

We look forward to your call.

Dr Claire Armstrong

*Scottish Life online resources published June 2012 (37W1107)


National Employment Savings Trust (NEST) – implications for small businesses

Talking with an accountant this week reminded me that the proposed NEST pension reforms had not really filtered through or even hit the radar in some cases yet.
Small businesses owners can be forgiven in the current economic climate for having other things on their collective minds, but a start to understanding what NEST might mean for their businesses should be addressed sooner rather than later.
I’ve laid out the absolute basic details of the NEST proposals and would encourage you or your employer to give me a call to discuss the implications for your own businesses.
• The UK Government has agreed that all UK businesses, regardless of size, should offer a company pension scheme or enrol their staff into the new National Employment Savings Trust (NEST).

• From October 2012 UK employers will be required to automatically enrol employees into a ‘qualifying workplace pension scheme’. This auto enrolment could be to your existing company pension scheme if it meets certain criteria. If it does not meet the criteria or if you do not operate a company pension scheme then your employees will be enrolled into NEST, a low-cost pension scheme being introduced by the Government.

• Staff who are aged 22 or more and currently earning more than £7,475 a year will qualify.

• NEST is due to start in October 2012, with the largest employers joining first and the smallest joining by September 2016. Contributions from staff and employers will also be phased in. Until October 2016, the minimum overall level of contributions will be just 2%, with 1% coming from employers. From October 2016 to September 2017, total contributions will be 5% with 2% coming from employers. And from October 2017, the total minimum contribution level will be 8%, with employers contributing at least 3%.

• As well as the phasing in of compulsory contributions, legislation designed to minimise the burden on employers includes simple qualifying criteria for existing pension schemes and a simple compliance regime for new employer duties such as automatic enrolment.

Please find a more detailed factsheet here.

Roland Oliver