Autumn Statement predictions
Speculation is mounting that chancellor George Osborne will tinker with pensions in his Autumn Statement today to help plug the UK's fiscal deficit, with a reduction in the annual pension allowance the most likely announcement.
The annual pensions threshold, in other words the maximum amount that can be paid into a pension each year and receive tax relief, used to be £255,000, but was slashed to £50,000 in Osborne's first emergency Budget in 2010. Now experts fear it could be cut again to £40,000, or possibly to £30,000.
Final salary pension scheme members could be hit by a change in the annual allowance, as would workers on high salaries and people who failed to contribute to a pension early in life and are now trying to make up for lost time by making large contributions as they approach retirement.
John Fletcher, director of financial planning at Brewin Dolphin, says people planning to make contributions to their pensions this tax year should do so before Osborne delivers his Autumn Statement today, "in case the chancellor takes a further [immediate] swipe against savers".
Pension savers are allowed to "carry forward" the previous three years' allowances into their current year's allowance, if they have not been used. Under the current rules the maximum carry-forward contribution that can be made is £200,000 (£50,000 multiplied by four). If the allowance was reduced to £30,000 the carry-forward contribution would be slashed to £120,000.
Philip Haden, director and chartered financial planner at McCarthy Taylor, agrees that savers should consider making pension contributions before 5 December. He says a move to reduce the annual allowance would be a "blow to savers".
Roy Davidson, a pension specialist at law firm Dickinson Dees, comments: "Reducing the annual allowance further will affect many more people than the hotly-debated 'mansion tax' and further erodes the ability of successful people who have worked hard to invest so they can also enjoy their retirement."
Higher-rate taxpayers that pay 50% income tax should also top their pension up this tax year as from next April the tax relief applied to their contributions will fall from 50 to 45%.
Independent savings commission
Pension firm AJ Bell appears to be so fed up with the way pensions are routinely seen as an easy target to slash benefits, introduce complicated rules and essentially claw tax back to bolster the UK's ailing balance sheet, that it is calling for an independent long-term savings commission to be set up to "de-politicise policy decisions".
Chief executive Andy Bell explains: "Altering the fundamentals of tax relief rules on pension contributions is a temptation that no chancellor can ignore in times of weakness. But this short-term sugar rush will lead to the disengagement of long-term savers."
He adds: "A key role of government is to create an environment to encourage savers to make provision for their old age. Savers are quite frankly fed up with the uncertainty and constant changes to the rules and regulation."
Inheritance tax and fuel duty
Sarah Spash, personal tax partner at accountants Blick Rothenberg, is optimistically hoping that Osborne will raise the threshold at which inheritance tax applies to estates from the current £325,000 to £1 million. Currently there is a 40% tax charge to any estates that are worth more than £325,000 on death.
She says that alternatively the chancellor could tweak the IHT rules so that the individual's main property is exempt from the tax.
Blick Rothenberg also says the government may decide to delay the planned January increase in fuel duty.
Vicky Redwood, economist at Capital Economics, concurs, saying postponing the 3 pence per litre rise is on the cards, "perhaps paid for by extra taxes on high net worth individuals, a crackdown on corporate tax avoidance and some further welfare cuts".
Asda's chief executive Andy Clarke said recently that the rise in the price of petrol would come at the worst possible time for families facing rising energy costs, and called on the government to scrap the fuel duty rise.
This article was written for our sister website Money Observer
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Final salary pension
A defined benefit pension scheme is one where the payout is based on contributions made and the length of service of the employee. A typical scheme would offer to pay one-60th (0.0168%) of final salary (the one you’re earning when you finally retire) for each year of contributions to the scheme (even though these years were probably paid at a lower salary). Someone retiring on a final salary of £30,000 who had been a member of the scheme for 25 years would receive a pension of 42% of their final salary (£12,300 a year before tax). Sadly, many companies are winding up their final salary schemes or closing them altogether, meaning pension benefits accrued after a certain date (or those available to new employees) may be on a less generous money purchase basis.