IS YOUR PENSION FALLING SHORT?

The Government has announced a significant reduction in the maximum amount of pension savings which will benefit from tax relief.

The government aims to replace a series of complicated changes, due to start next April, that were put on the statute book by the previous government and which targeted high earners. Instead, the new reduced annual allowance for tax-free pension savings will apply to everyone.

This lower sum is the amount by which your pension pot can grow each year, above which the surplus is taxed.

Main changes

In order to cut several billion pounds from the tax relief given to pension savers each year, the government has decided that:

• The reduced annual allowance for 2011-12 will be £50,000, rather than £255,000
• From 6 April 2011 the more restrictive interim allowance of £20,000 for high earners will be removed
• There will be a carry-forward rule that allows unused annual allowances from the previous three tax years to be used
• £50,000 of annual allowance is equivalent to a final salary-pension accrual of £3,125, whereas previously £50,000 was equivalent to £5,000
• The lifetime allowance - the maximum level of benefits that a member can draw from all registered pension schemes without incurring penal tax charges - will be cut from £1.8m to £1.5m from 6 April 2012
• Tax relief for all pension savings up to the new allowance will be granted at a taxpayer's highest rate of income tax, with any excess taxed as income tax through self-assessment.

With all these changes happening in 2011, it is essential that business owners and higher paid employees sit down with their Financial Advisor and discuss all the options for retirement planning. If you want a comfortable retirement you must act now.

For more advice on successful retirement planning, please contact experts@meadesandco.co.uk