Is it time for high earners to look at fixing their pensions?
Now’s the time for urgent pension planning for high earners as the government has given the heads up that tax breaks are likely to be scrapped in the next Budget.
HM Revenue & Customs is already coping with a flood of fixed protection applications from 70,000 wealthy taxpayers who fear they will lose 50% relief and further annual allowance restrictions.
They are responding to strong hints from No 10 and the Treasury that Chancellor George Osborne will scrap 50% tax relief on pension contributions in his Budget on March 21.
The government sees the move as a simple and effective way to claw back cash from the well-off that does not impact on the wider economy.
The loss for a top rate taxpayer is a potential £25,000 relief on £50,000 of contributions in the next financial year.
By acting now with an application for fixed protection, they are signalling they will seal their pensions from the start of the next tax year – but the opportunity to make one last contribution is still available.
On offer is 50% relief on a possible £250,000 one-off contribution providing the retirement saver pulls together unused allowances from the past three years, the current year’s allowance – and depending on pension input periods – next year’s allowance as well.
Of course, the contribution has to fall within the limits of gross relevant earnings as well.
Due to HMRC’s less than sparkling track record for dealing with time limited claims, pension advisors should consider making a fixed protection application before the Budget, as any changes could take immediate affect but cannot be retrospective.
The application should be sent by recorded delivery, so timed and dated arrival is confirmed by an independent third party – the Royal Mail.
Pension expert Adrian Walker, of investment firm Skandia, said: “It is interesting the high numbers who have already applied for fixed protection, as it is still early February. We normally expect to see a spike in these sorts of applications as tax year end approaches. The latest rumours surrounding the allowances are bound to have an affect and change people’s behaviour.
“People are urged to act now, as the new reduced pension allowances could come into force from Budget Day on March 21, not tax year end on April 5. If people have built up large sums of money, then applying for fixed protection will offer further tax advantages on their existing savings.”