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‘Confusing’ pensions rules trip up high earners

Recent changes to pension benefits have left high earners “confused and bamboozled” as to what action they need to take in order to comply with the rules, says an independent financial adviser.

23 October 2012

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AWD Chase de Vere says that an increasing number of its clients aren’t aware of changes to lifetime and annual pension allowances, leaving them at risk of punitive tax penalties.

“In these times, when the government supposedly encourages tax and pension simplification, the rules high earners face surrounding their pension benefits continue to confuse and bamboozle,” said Andrea Sproates, head of British Medical Association (BMA) Services at AWD Chase de Vere.

In April this year, HMRC lowered from £1.8m to £1.5m the threshold for the lifetime pension allowance, which is the maximum value that accumulated pension schemes may reach before incurring an exceptional tax charge. Those affected were able to seek protection, but had to take action by 5 April 2012.

The move came twelve months after HMRC lowered the level of annual allowance permitted to qualify for tax relief on pension savings in a registered pension scheme, which decreased from £255,000 to £50,000 in April 2011.

High earners are particularly affected by the changes to the rules. “GPs and other high earners with final-salary pension benefits are at significant risk, especially if they have long service, significant pay increases, purchased added years or pension or also contribute to private pensions,” said Sproates.

“Some of these people should stop contributing into their pension scheme, reconfigure how they will take benefits, including taking them earlier or allocating to a dependant, and opt more for non-pensions savings.

“All of this can be extremely complicated and so it is no wonder that an increasing number who don’t take appropriate advice could end up paying a heavy cost,” said Sproates.

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Pensions