BNH Fears Long-Term Effects of Pension Tax Changes


Pension benefits are once again under threat from Government, according to independent financial advisers Brunning Newman Houghton (BNH).

With the Budget due to be unveiled by Chancellor George Osborne on Wednesday, March 21, there have been a number of rumours circulating in the financial press as to what cuts or revenue-making regulations will be introduced.

David Brunning, Director of BNH, based in Tunbridge Wells, said: “Of all these whispers from Whitehall the two that our clients are most concerned about are the threat to tax-free cash (now more properly called the Pension Commencement Lump Sum or PCLS) and possible cuts to tax relief on contributions.”

Currently up to 25 per cent of an individual’s pension fund can be taken as this tax-free lump sum from age 55, costing the Government an estimated £2.5 billion annually. This has been reviewed by various Governments and under proposals being considered by a powerful group within the coalition – Prime Minister David Cameron, Deputy Prime Minister Nick Clegg, Chancellor George Osborne and Chief Secretary to the Treasury Danny Alexander – the percentage could be reduced to a fixed monetary sum, if it is kept at all.

Mr Brunning added: “Attacking the tax-free cash has always been an easy option for the Government. It would certainly raise some revenue, but it is unclear how much. Much as it would be a quick win for the Government coffers one has to look at the long-term effects.
This follows limitation on pension contributions, recently cut from £255,000 per annum to £50,000, and a review on the income tax relief granted on pension contributions. The Liberal Democrats are known to favour limiting income tax relief on pension contributions to 20 per cent while the Conservatives are not. The question is will the price of continued Liberal Democrats support for the much criticised Health Bill be cuts to pension benefits?

“Against a background of volatile investment markets and falling pension annuity rates, the major attractions that encourage people to invest in pensions are the prospect of a tax-free lump sum at retirement and tax-relief on contributions. If the Government removes these incentives, fewer people will be inclined to save for their retirement.”

For pensions advice and support please call David Brunning at BNH on 01892 861002 or david@bnhl.co.uk.

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