If you are on course to pick up a retirement income of £50,000 a year or more from a final salary pension then you may face the prospect of seeing a slice disappear because of daunting taxes.
That’s because a legal cap on pension savings means a fund of more than £1 million means pension savings lose their tax-free protection when they pass through that ceiling. The government has imposed a lifetime allowance on pension funds of £1 million and a final salary retirement income of £50,000 a year is deemed as the maximum even though the fund has no real cash value.
Doctors, head teachers and public servants with middle or senior officer grades are all at risk and probably do not realise they will have to pay a 55% on any final salary pension that tops the lifetime allowance. It’s easier to keep tabs on a defined contribution pension because the fund is assigned to the saver and the trustees must report the cash value to the saver with a statement each year. But as final salary pensions or direct benefit schemes report likely annual pension income rather than cash values, if you do not realise the £50,000 equals £1 million rule applies to you, it’s more difficult to see when the tax penalty starts to bite. The main point to think about is the net outcome rather than having sleepless nights about the amount of tax due. The question is will you end up with more cash in the hand from overpaying into a pension rather than investing the same amount of money elsewhere?
House prices up or just erratic?
House prices are up 5% over the past year, according to Halifax, which recorded a dramatic jump in property inflation last month. But the lender lender said the property market remained ‘subdued’, as experts cautioned that Halifax’s house price index was continuing its erratic 2019. Annual house price growth leapt from 2.6% in March, with Halifax reporting that the average UK home cost £236,619 in April – some £16,195 more than a year earlier. April also marked the 10-year anniversary of the house price low following the financial crisis. Property prices have risen £81,956, since April 2009 when the average price was £154,663. Halifax said the sharp 5% annual rise recorded in April was down to a comparison with ‘particularly low’ growth in house prices last year. The lender’s figures found prices also grew 1.1 % last month, reversing a fall of 1.6% in March, which was later revised down to 1.25%. Highlighting the index’s volatility, that in turn followed a record 5.9% house price bounce in February. The index has seen a weaker pace of growth over the last three years, which is consistent with the easing of transactions volumes and housing market activity reflected in RICS, Bank of England and HMRC figures. Estate agents have said that the property market has picked up since the gloomy end of 2018, with buyers attracted by the more keenly priced properties that have been put up for sale as the Brexit saga rumbles on. Experts were quick to blame a lack of supply and low mortgage rates for supporting prices, however, rather than any underlying strength in the property market.
Tax implications of an ageing population
Taxes will keep rising for years to come to cover the cost of caring for Britain’s ageing population, Philip Hammond has warned. Despite success in the long battle to defeat the budget deficit, the Chancellor said the tax burden – already its highest in more than 30 years – will rise further. Higher earners in particular should brace for a bigger bill to HM Revenue and Customs as Mr Hammond said “grumbling” from the rich should be taken as a sign of success. “The trick in any tax system is to get the balance right. If taxpayers who are paying large amount of tax weren’t grumbling, we wouldn’t have got it right,” he told MPs on the Treasury Committee. The tax-take last year hit 34.6% of national income, or gross domestic product, the Office for Budget Responsibility said. That was the highest level since Harold Wilson was Prime Minister in 1970 reflecting the inescapable reality that as the population ages, the pressure on public services and spending increases.
Financial Advice Including Pension Advice, Bristol
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