Financial Planning Matters… a monthly insight with Jonathan Beardmore, an IFA at Pearson Solicitors and Financial Advisers.
BENJAMIN FRANKLIN said there were only two things certain in life: death and taxes – but I’d like to add a third: pensions.
Chancellor George Osborne will announce the outcome of a review of pension tax relief next month and while he hasn’t confirmed what will change, The Financial Times and other reputable sources are reporting he’s planning a flat-rate ‘savings incentive’ of between 25 per cent and 33 per cent for everyone.
The interesting thing about this is not that George wants to raise taxes – we know he wants to do that – but that he may decide to do it via pension tax relief.
Why on earth is it acceptable to penalise hard-working people who are trying to provide for themselves so the state does not have to?
It’s simple: it’s because people don’t always understand pensions.
Hardly a single day goes by where I don’t have a new client asking the question “Is a pension any good?”
Such is the perceived complexity around pensions that a lot of people just place their annual statement in a cabinet draw next to expired parking fines and take-away menus never to read again!
If you had the cash equivalent in the sideboard I am pretty sure you would be keen to get that money working for you.
So firstly if you have a pension I would recommend you get to grips with exactly what it is worth and what it will entitle you too.
Not only do most people not know how their pension is taxed, most don’t even know how it is invested and this can make a huge difference to your final income in retirement.
Lastly, would a single rate of ‘savings incentive’ as George is suggesting benefit people?
Well maybe. For low earners it might end up been very beneficial. However, for higher rate and additional rate tax payers it might be very costly, leading to the withdrawal of thousands of pounds tax relief.
The review is due on March 16 and if you need advice on getting your well-earned tax relief call me on 0161 785 3500.