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More changes to your pension plan

Since April 2015, anyone over the age of 55 has been able to withdraw an uncapped amount of money from their pension pot, subject to income tax.

This means that more people will be able to retire and take money from their pension without having to buy an annuity to do so. The introduction of the Pension Freedom Strategy has given people greater power on how they spend, invest or save their money.

This sounds good, but the entire process has been highly criticised for causing confusion. How can anyone plan for their future if the piggy bank keeps moving?

So what’s new?

The Chancellor of the Exchequer, George Osborne, said that forthcoming changes to the way pensions are taxed will encourage saving.

The idea is likely to be seen as encouraging for those who believe that pensions should continue to be taxed when money is taken out of them, rather than before it is put in.

Another idea from the Treasury is to make pension saving more like contributions to Individual Savings Accounts like (ISAS), which are taxed on the way in, but subsequently grow tax-free.

Sounds great for the average wage earner, but millions of high earners would lose out with this system.

Are we going to continue ‘Punishing’ high earners?

Another change being considered by Parliament is to replace variable tax with a single, flat-rate tax.

Let us explain.

Presently, basic rate taxpayers receive 20% tax relief, higher rate taxpayers receive 40%, and those with the highest incomes receive 45%.

This could be replaced with a single flat rate taxation of anything between 25% and 33%.

Sounds great for the average wage earner, but millions of high earners would lose out with this system.

How would a flat rate work?

A higher rate taxpayer making a £10,000 pension contribution currently gets a tax relief of £4,000.

Under a new flat rate of 25%, they would only receive £2,500, which is a loss of £1,500.

However a basic rate taxpayer would gain £500.

The higher the rate chosen, the more savers would gain, but the more it would cost the Treasury.

This story is set to carry on and we will continue to keep you updated with any developments.

More changes to your pension plan was last modified: April 6th, 2016 by Phill Slater

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