Don't Pull the Trigger

Hidden amongst the inevitable small print in George Osborne's latest batch of reforms to
pensions, most of which are due to take effect from 05 April 2015, are some easy to miss
dangers for individuals who use money purchase pension shares to save for their
retirement.
As with most radical reforms to regulations there will be a number of unintended
consequences, one of which being the potential loss to the Exchequer of revenue from
National Insurance, due to individuals aged 55 or over electing to be 'paid' indirectly via
their pension fund, rather than by their employer/company.
To combat this and other risks to the Exchequers income, the Government is introducing a
number of so called 'trigger events'. One of the most significant of these events, should it
occur, has a significant impact on the amount that an individual can pay into (or have their
employer/company pay into) a pension each tax year, known as their Annual Allowance.
An individual therefore who, having reached the age of 55, decides to take just 1 of income
from a pension scheme after 05 April 2015, will not only see their Annual Allowance reduce
from 40,000 per annum to 10,000 per annum (forever), but will also lose the option to
carry forward any unused (pension contribution) relief that they may have available to them,
for the preceding three tax years.
For an individual who was intending to maximise their pension contributions, say for another
10 years, this could cost them up to 193,500 in lost tax relief where the individual is a 45%
taxpayer and making personal pension contributions, or corporation tax relief of up to
86,000, if contributions are being paid by the individual's business.
One of the biggest risks however is where individuals receive communications about options
for liquidating small pension funds directly from insurance companies and fail to seek
specialist advice before responding to these, especially given that decisions to crystallise
(take) benefits from a pension policy cannot be reversed.
There is however scope to avoid this particular 'trigger event' by consolidating pre-existing
pension schemes into an arrangement with the functionality to allow so called 'flexible (or
flexi) drawdown'.
This can allow an individual to receive their so called Pension Commencement Lump Sum,
after 05 April 2015, tax free, without losing their right to carry forward or to continue to
contribute up to 40,000 per annum into their pension, however advice from a fee-based,
independent, specialist pensions adviser (ideally one with the relevant G60 or equivalent
pensions qualifications) will be essential.
The detail contained in these new reforms will inevitably be overlooked by many individuals
and some of their professional advisers, in particular by their accountants, as well as by
financial advisers who do not deal exclusively with pension work. You should therefore seek
advice now and be very careful not to, albeit inadvertently and most likely unintentionally,
pull the trigger.
For further information on how to avoid so-called 'trigger events' and how to make the most
of your existing pension benefits, please call GL Chartered Financial Planners on 0117 906
9400 and ask to speak to either Russell Haworth or Andrew Brown.