Q. I am fortunate to have a salary of £140,000 plus a car and other benefits, including a 15% pension contribution on my behalf. As I don’t need my bonus payment, I have often had this paid as a pension contribution in the past. My accountant is telling me that I may want to reconsider this in future, as the Annual Allowance is reducing. What is happening?
A. From April 2016, the amount of the Annual Allowance is being reduced for those with “Adjusted Income” in excess of £150,000. At first sight this may seem not to include someone on your salary. However, also included are P11D benefits and importantly, pension contributions. Every £2 of “Adjusted Income” over £150,000 causes a £1 reduction in the £40,000 Annual Allowance, down to a minimum of £10,000 for those with income in excess of £210,000. We would need further information to calculate the exact situation, but the generic sums we have done indicate that if someone is likely to exceed both the Annual Allowance and also the Lifetime Allowance, it may be more cost-effective to accept the bonus rather than apply it to a pension contribution. It may also be good to review your full situation to investigate whether it might be better to opt out of future contributions before April 2016 and elect for Fixed Protection to retain a higher Lifetime Allowance. This is very much a case for individual advice, however, and we would need much more information to provide comprehensive advice on the matter. I recommend you speak to a chartered financial planner up to speed on the latest changes in pensions for advice.
Q. Is there any further news on being able to sell your pension annuity?
A. The government has confirmed that its plan to allow people to sell annuities for cash will take effect in April 2017. Details will follow in the Spring Budget this year. However, before getting too exited about this news, it is likely that anyone selling their annuity in the future is likely to get substantially less than they originally paid for it, and the longer you have had it the worse it is likely to be.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
