Friday, 11 July 2014

Pension 25% TFC won't be abolished?

Pensions minister Steve Webb has said the 25% tax free cash lump sum from pensions will not be scrapped.
This was in conversation with professional publication 'New Model Adviser'

The government has recently faced calls to abolish the 25% tax free cash lump sum to make up for lost taxes resulting from this year’s Budget announcement, that post retirement pension fund withdrawals would be taxed at a person’s marginal rate rather than 55%.

Labour leader Ed Miliband has called for the lump sum to be limited to £36,000.

Some Green Financial clients (over the age of 55)  have requested their 25% 'just in case' the lump sum does go.
Green Financial have never been ones to advise on financial planning based on speculation. Almost every year in my almost 2 decades in this profession, I've heard the 'rumour' that 40% tax relief on pension contributions will go!

So it's a personal decision for each client.

And if a politician is saying "it won't be scrapped" then surely that's enough?

After all, when has any politician, from any party, ever gone back on their word...?

UPDATE - 22 JULY 2014

Yesterday, the Government gave a clear green light to the radical rewriting of the pension rule book. The Government response to the 2015 ‘freedom & choice' consultation delivers on the Chancellor's Budget promise of much more DC pension flexibility and provides further detail on some of the changes in store from next April. Advisers can now start planning in earnest to ensure clients make the most of this new pension freedom when it comes.

Today's announcement confirmed:

  • DC flexibility will go ahead from April 2015.
  • A £10k AA will apply after a client accesses flexibility, to counter abuse of the new freedom.
  • The guidance guarantee will be delivered by a range of independent providers, including MAS and TPAS.
  • Tax-free cash will stay at 25%. [IG - there it is]
  • DB transfers will still be allowed - but only after professional advice.
  • Death benefit tax will come down from 55% - new tax rate to be confirmed in Autumn Statement.
  • Normal minimum pension age is going up to 57 from 2028.

Tuesday, 1 July 2014

ISA allowance raised to £15,000

The much publicised changes to the ISA rules take effect from today. Anyone who has already maxed out their ISA will be able to pay an extra £3,120 this tax year.
The total one can invest has increased from £11,880 before next April, to £15,000.
Despite the flexibility around taking money out of pensions, ISAs remain a valuable tax incentivised savings vehicle especially for those who have already paid the maximum to their pension.

Here is my blog post from 2012 (it still stands) on cash ISAs for people with investment portfolios
The high street institutions may be attempting to tempt people with advertisements for cash ISAs but is a cash ISA worth having?

Nationally, Only 26% of individuals earning between £100k - £150k maxed out their ISAs. Over 85% of Clients of Green Financial have, for the most part, already used the new allowance. The funds were ready to invest, in the non-ISA part of their portfolio and will be moved in to the tax free element today, thus maximising the time their investments are tax free. And we do all of this as part of our service. There remains no charge for new or existing clients to add to their ISAs.

2012/13 subscriptions Cash: £40 billion, Non-cash: £16billion

£443 billion was held in ISAs (as at April 2013) split almost 50:50 between cash and non-cash