Category Archives: Pensions

The Tapered Annual Allowance – Can You Escape It?

The Spring Budget 2020 increased the annual allowance income limits, taking many high earners out of the tapered annual allowance.

The new limits explained

Every individual is usually eligible for the standard annual allowance for pension contributions of £40,000 per annum. However, the tapered annual allowance reduces the standard annual allowance when income reaches certain levels. These income limits have recently been increased.

The ‘adjusted income’ limit has risen to £240,000 (up from £150,000), and the ‘threshold income’ limit to £200,000 (previously £110,000).

Tapering reduces the standard £40,000 annual allowance (AA) by £1 for every £2 of adjusted income over £240,000. The minimum annual allowance is £4,000 for anyone with adjusted income of £312,000 or more.

This means many of those previously subject to the full taper will see their annual funding allowance increase by £30,000 per annum. An extra £30,000 of gross funding equates to annual tax relief of £12,000 for a higher rate tax payer, £13,500 for an additional rate tax payer and £5,700 for a company director claiming corporation tax relief.

It’s clear that for some this is really good news, but unfortunately very high earners could see their funding ability cut further. Those with threshold income over £200,000 and adjusted income over £312,000 will get less tax relief, as the maximum annual allowance now drops to £4,000 (previously £10,000).

What is adjusted and threshold income?

It’s important to understand what counts as adjusted income and threshold income. Pension funding is treated differently under the two definitions and this is important in effective planning.

  • Adjusted income is broadly total income plus any employer pension funding. This is relatively easy to identify for money purchase schemes but less so for defined benefits.
  • Threshold income any individual pension contributions are deducted to calculate threshold income.

This means that an individual pension contribution can help avoid the taper.

What else should you factor in?

Redundancy payments. While the first £30,000 is tax free and does not count towards either of the adjusted or threshold income limits, anything above this will count. This may mean an individual not normally subject to the tapering rules is now caught. Good planning can help to navigate these rules.

  • Making an individual pension contribution so that threshold income dips below £200,000 might restore the full £40,000 annual allowance and allow more tax relief on at least part of the taxable redundancy payment. This may be particularly attractive to those near to, or above, the minimum pension age of 55.
  • Care must be taken when accepting an offer of redundancy ‘sacrifice’ whereby the package includes a payment by an employer into the pension scheme. This may be enhanced if the employer offers to pay in their employer National Insurance savings (from 6 April 2020 employers now pay NI on the taxable part of a redundancy payment). However, care should be taken as this will be a new sacrifice arrangement and will count towards both adjusted income and threshold income. In such circumstances, taking the redundancy payment and making an individual contribution may be the better option if it keeps threshold income below £200,000, and retains the full annual allowance.

Carry forward. In order to make a contribution large enough to take threshold income below £200,000, you may need to rely on carrying forward unused annual allowances from the previous three years. When determining how much might be available, remember that the annual allowance in those years might also have been tapered. So even if no contributions were made at all in those earlier years, the amount for carry forward from each year may still be less than £40,000.

Non-deductible relief. Although income tax relief may be available on certain transactions, it may not reduce adjusted or threshold income. These include:

  • Investing in VCT, EIS, and SEIS– income tax relief is given as a ‘tax reducer’ and is based on a percentage of the amount invested. It reduces the final tax bill, but does not reduce taxable income. Adjusted and threshold income are both based on taxable income and are therefore unaffected by such investments.
  • Gifts to charity– Gifts made under gift aid will not reduce adjusted or threshold income.
  • Investment bond gains– The full chargeable gain will be added to adjusted and threshold income – not the average gain used for top slicing relief. This could counter any planning to retain the full annual allowance for this tax year.



Although the increase in the adjusted income and threshold income limits could be read as a pension tax give-away for high earners, the measure was introduced primarily to solve an issue around annual allowance tax charges that existed amongst NHS doctors.

For those who normally have a reduced annual allowance, this may be a window to boost your pension savings with maximum tax relief.

Some suggest the widow of opportunity to do so may be short lived. Speculation surrounding the reform of pension tax relief continues, perhaps unsurprising given current levels of Government debt. It is possible that the rate of relief available becomes less attractive in the future.

For more information on any of the above information or discuss the best way to navigate pension funding for your own personal circumstances, please contact us.

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Three Reasons to Review the Contents of your Company Pension

The latest statistics into auto-enrolment have shown that pension saving is on the up, with figures from 2019 showing that over 10 million individuals are now enrolled in a workplace pension. However, not all pensions are equal and a series of other statistics suggest that individuals could be missing out on maximising their potential investment returns.

It is estimated that around 90-95 per cent of individuals registered with an employer pension scheme stick with the default fund, leaving significant room to question whether an alternative choice might be better suited to their needs.

Research by Hargreaves Lansdown found that 74 per cent of people are unaware of where their pension is invested, with only 11 per cent of those surveyed knowing what was meant by a ‘default fund’.

Clearly, people are opting for the easiest option when it comes to setting up their pension, and thereafter failing to take a significant interest in how their pension is growing or performing. However, the default funds within an auto-enrolment pension are unlikely to fit the age, attitude to risk or personal preferences of every individual.

Here are three reasons you might want to review the funds your pension is invested in.

Look to improve performance

A company pension fund will usually have to meet the needs of a large number of employees, across a wide variety of earnings and ages. As a result of having to provide a one-size-fits-all solution, the majority of default pension funds offered by auto-enrolment are likely to be conservatively managed. For most people, better investment options may be available, resulting in the potential for increased returns.

Research by Hargreaves Lansdown shows that default pension options underperformed the most popular funds actively selected by workers – or their advisers – by 4.89 per cent a year, over a five-year period.

Although you may not consider that a 1% or 2% increase in the performance of a fund would make a great deal of difference, underperformance at this level over the course of an individual’s working life could mount up into a significant amount.

Check that your investments align with your beliefs

As more and more people look to take a more sustainable or ethical approach to their lives, the credentials of the companies in which their money is invested is becoming a greater concern for pension holders.

Within any investment fund will be a number of companies – and these can vary across a wide range of industries and individual companies – whose practices you may not necessarily agree with. The process of investing money effectively means you are supporting that business, a fact that you may feel uncomfortable with.

It is highly unlikely that the default funds the majority of company pension schemes are invested into would be classed as ‘ethical’. Therefore, taking a closer look at the default funds and the companies within them may prompt you to make changes, opting to invest in funds and companies that align more closely with your ethical stance.


Spark your interest in long-term planning

Many people pay into a pension for many years without ever really thinking about what it means. The money that you accumulate in a pension effectively becomes your income stream when you reach retirement age, so it’s in your interests to understand it. Once people start to look into their pensions in more detail, it can spark several questions – not least the question of whether you’re saving enough for a comfortable retirement. Many people will contribute the minimum level required, but could perhaps afford to contribute more. Some employers will offer to match additional contributions made by employees – so this could be well worth it in the long term.

Outside of this, some people may wish to take greater control over their own pension, or look at the other tools available to them. If you wish to develop a more robust financial plan and look at all of your options, including ISAs, private pensions, investments and other forms of savings, a review with a financial planner can prove a worthwhile exercise.

If you’re unsure what funds your pension is invested in, the first step is to speak to your employer or get in touch directly with the pension provider. From here, you should be able to check what you’re invested in, thereafter working out if these investments are right for you.

The value of investments and income derived from them can fall as well as rise. You may not get back what you invest.


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New Report Highlights Retirement Styles and Their Cost

A new report has revealed the amount of money individuals and couples will need in order to access different styles of retirement. The Retirement Living Standards report, produced by the Pensions and Lifetime Saving Association (PLSA), has been developed to help individuals paint a better picture of the kind of lifestyle they could have in retirement according to the income they stand to receive.

The publication shows three different levels of retirement – minimum, moderate and comfortable, demonstrating each with a basket of goods and services, ranging from everyday essentials including food and drink to other purchases that may be made on an annual basis, such as holidays.

A ‘minimum’ retirement of income of £10,200 per year for a single person (or £15,700 for a couple), would afford a one week holiday plus a weekend break in the UK every year, eating out about once a month and a £38 weekly food shop. A moderate income of £20,200 a year for a single person (or £29,100 for a couple) provides ‘more financial security and more flexibility’, affording a 2 week holiday in Europe and a long weekend in the UK every year, a £46 weekly food shop and £750 for clothing and footwear each year. In order to experience a ‘comfortable’ retirement with more financial freedom and some luxuries, including regular beauty treatments, two foreign holidays a year and a £56 weekly food shop, an annual income of £33,000 a year (or £47,500 per couple) would be needed.

The full breakdown of the expenses that could be afforded at each level of retirement can be explored in detail here

The Retirement Living Standards have been developed following previous PLSA research which showed that 51% of people focus on their current needs and wants at the expense of providing for the future and only 23% of people are confident they know how much they need to save.

The report highlights that with the current state pension entitlement and an auto-enrolment pension pot at the minimum contribution level, ‘most people’ in the UK could attain the ‘minimum standard’ of retirement living. When looking at the detail of what this entails compared to what a larger annual income could afford goes some way to help people picture their future retirement.

These findings are a useful way for individuals and couples to benchmark their retirement aims and goals. Although many people save for retirement, they rarely have a clear picture of how much they will need, particularly during the early years of pension contributions. Although the Retirement Living Standards are a useful starting point, in order to find out if you’re on track for the type of retirement you want, it will be necessary to do some further research or consult a financial adviser.

We tend to find that as they get closer to retiring, clients develop a sharper focus on what they want from retirement. Unfortunately, by leaving it until the latter stages of working life, individuals may find that they haven’t left enough time to accumulate savings.

It can be said with some certainty that the earlier saving for retirement commences, the ‘cheaper’ it is – due to the ability for compound interest – reinvesting the proceeds of investments and savings.

For more information on retirement planning, please contact us to speak to one of our Chartered Financial Advisers.

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Saving for Retirement – Are you Doing Enough?

A recent report by pensions provider Scottish Widows has found that more people than ever are saving for a comfortable retirement. Scottish Widows 15th annual Retirement Report revealed that 59 per cent of people are now saving at an adequate rate, a 4 per cent increase from 12 months ago, when the figure stood at 55 per cent. The increase in savings rates has been attributed to the rise in the minimum contribution levels of auto-enrolment pensions, introduced in April 2019.

To date, over 10 million people have been automatically enrolled in an auto-enrolment pension scheme and according to the Office for National Statistics, the proportion of individuals who are now saving into a defined contribution pension has risen from 17 per cent in 2012 to 47 per cent in 2018.

Although this is a definite step in the right direction, in many cases, it will still fail to provide a pension pot that will be adequate to see an individual through the entirety of their retirement. The Scottish Widows data found that although the proportion of under-30s now saving into a pension has increased dramatically, three in five are saving below the recommended level for a comfortable retirement and 14 per cent of the age group are not saving anything.

Furthermore, the report found that 22 per cent of adults in the UK expect they will never be able to retire.

Auto-enrolment has proven to have a measurable impact on pension savings, but the danger is thinking that this is enough. Those that are able to save more – both into pensions and ISAs – will give themselves a greater level of options when it comes to retirement.

The problem is that many people are blissfully unaware of how much they will need in retirement and therefore how much they realistically need to save. The good news is that there are many different tools available that can help clarify your position.

Regardless of your age, having the discipline of regular saving or setting goals for annual savings can go a long way to funding a financially comfortable retirement.

The Scottish Widows report can be found here.

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42% of Pension Savers at Risk of Falling Victim to Pension Scams

New research suggests that 42% of pension savers, which would equate to over five million people across the UK, could be at risk of falling for at least one of six common tactics used by pension scammers.

The findings, which come from research conducted by The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR), also revealed that among those who said they were actively looking for ways to boost their retirement income, the likelihood of being drawn into one or more scams increased to 60%.

The most common tactics employed by scammers include cold calls, exotic investments, a free pensions review, claims of guaranteed high return, time-limited offers and early access to your pension pot before age 55.

Despite the government’s ban on pension cold-calls this January, 23% of all those surveyed said they’d talk with a cold-caller that wanted to discuss their pension plans.

Pension scams are a very real threat, especially to those with significant levels of pension savings. According to statistics, victims of pension fraud in 2018 lost an average of £82,000. However, any loss of funds that you spent your working life building up can be devastating.

The advice to help avoid falling victim to pension fraud is:

  • Reject unexpected pension offers whether made online, on social media or over the phone.
  • If you are at all concerned or suspicious, you should check to see if the firm you are dealing with is authorised by the FCA before changing your pension arrangements. You can do this by reviewing the FCA Register or calling the FCA contact centre on 0800 111 6768.
  • Don’t be rushed or pressured into making any decision about your pension.
  • Consider getting impartial information and advice from an independent Chartered Financial Adviser. Those aged 50 can access free independent advice via the government-backed Pension Wise service.

Useful Resources:

The FCA has a warning list tool – designed to help you check the legitimacy of an offer or approach.

The Pensions Regulator has produced a handy leaflet that runs through the common ways to spot a scam and how to protect yourself from fraudsters.


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