We check, then we double check, then just to be sure we check again. Welcome to pension regulations, 2017-style.
We are technical specialists in regard to pensions – what started out as a simple idea to help people save for their retirement has now been overtaken by layers and layers of complexities and, worse, tax pitfalls for the unwary.
- Current pension legislation, rules, penalties and taxes are simply too severe and unclear to be left to either a DIY or amateur pension planner.
- We have recently been asked to help a person with a £77,000 tax bill, whilst still being employed. The tax bill was almost half the PAYE salary.
This is an area where even the specialists double and triple check and we are constantly having to refer back to Finance Act 2004 (Part 4 if you want a look), to ensure clients are in the right areas. A sizeable part of our work over the past years has been to sort out some significant problems that clients have, either from trying to muddle through, or thinking they can second guess HMRC interpretations, or, most commonly, trying to find a 'cleverer way' to invest their pension funds.
- Trying to be 'clever' with pension investments is something we see creating huge financial losses for people, normally male and with excellent university education - the curse of overconfidence?
It's important to ensure you're not missing out on real financial benefits, or worse, walking into a tax problem just because you took the wrong steps.
- Mr L.O. in Hampshire came to us concerned that he had a transfer penalty in his scheme. We handled the investigation for him, which included successfully 'overturning' a Financial Ombudsman decision, and got £148,000 put back into his pension pot. (That's a lot of money).
- Mr A.S. in Edinburgh came to us as his previous arrangement had involvement mid-atlantic off-plan leisure property that had inevitable turned his pension money to fresh air, and we got the maximum £50,000 back for him from the compensation scheme.
- Mr H.A. in Surrey runs a successful business, asked us to caretake a small part of his SIPP, he'd look after the bulk of the £1.8m SIPP himself. Something didn't look right in the history of this SIPP, six months later we got him £50,000 back via the FSCS he didn't know anything about. Now he's handed over to us responsibility over all the investments he holds.
There's a lot of puddles in the pension field, some very deep - here's five quick things to check (or double check)
1 Don't lose your tax free cash
The most recent legislation changes means that without action you could very easily lose the ability to draw an extra £62,500 tax free via your Pension Commencement Lump Sum (i.e. your tax free cash). Is it 25% you're entitled to or not? If you don't feel that's worth gambling on your knowledge then call us - it's your money to lose, or not. Be safe, doublecheck, take advice.
Successive governments have churned over their pension promises at will, attempting to balance their own books with the massive problems of unfunded public sector schemes. You must register now to ensure you can continue to retain the full PCLS amount of tax free cash, otherwise you will lose it.
If you're not sure, call for a meeting on 0207 440 6250 or email us at IncomeWizards@masteradviser.co.uk
2 If you're over 50 and have an old style scheme, just how much tax free cash are you entitled to?
If you have been in an old style Executive Pension Plan, you could have a right to materially more than 25% as tax free cash. Typically these policies were used by larger employers instead of final salary schemes for senior staff (or alongside), then during the 1990's they were very common with smaller businesses.
In some cases we have seen contracts where the tax free entitlement was 100% of the money - if you were thinking about transferring across an old scheme into a new drawdown arrangement, perhaps, isn't it worth checking out the tax free position? If you make an error, it's gone.
Double check, in such areas a competent adviser is always value for money so call us on 0207 440 6250, or email us at IncomeWizards@masteradviser.co.uk
3 Do you have guarantees attaching to your pension?
Given that contracts with guarantees are normally decades old, the devil is buried deep in the small print - speak to us, we check that small print for all our clients, such as:
- a guaranteed annuity rate, only applicable at the 65th birthday
- only applicable if requested one working week either side of the the actual birth day
- only applicable if it is paid annually....in arrears (! - we kid you not)
- only applicable if it dies with you (ignoring your spouse's needs)
- only applicable if it remains level and never increases no matter how long you live.
If you think you might be unsure of the small print, then you can call us on 0207 440 6250 or email us at IncomeWizards@masteradviser.co.uk
4 And if you're a higher rate tax payer...
Year after year the press and loose-lipped MPs comment that tax relief on premiums paid by higher rate tax payers is going to be withdrawn - we have no idea what fiendish plots HMRC and the Treasury have to cut their cost of your pension, however there is no downside to maximum funding your premiums now, and there could be material upsides later. If higher rate relief is cut, then it will cost a higher rate payer up to £8,000 in lost tax relief with current allowances.
5 If your pension started when M*A*S*H was on the first time round...
We think all personal pensions should be SIPPs - that's not to say people need to start doing exotic investments it just means that we believe the world is better served by not having a pension company restrict what investments you can hold. Remember, the 'PP' in SIPP stands for Personal Pension, and even though the SI stands for Self Invested very few people actually do it on their own.
- SIPPs are mainly absolutely transparent in fees - the pension wrapper should cost you no more than 0.2% - 0.3% per annum (on a £350,000 SIPP that's £700-£1,050 per year for an awful lot of admin they do).
- A SIPP should/will never have an exit charge - if yours does that normally means your adviser is not independent, and/or a large up front fee or commission was taken when your scheme was set up.
- Old schemes are both expensive and inflexible, they were designed when commission was rife in the industry and when you were expected to do nothing other than buy an annuity at retirement.
The big advantage of a SIPP is that the admin and the investment are separated, each can be done by a specialist.
Many pension have simply been sold/bought then left for years and years - if you're not getting decent returns from yours then now is the time to get that fixed, LATER IS ALWAYS TOO LATE, and it's important that you don't roll up to retirement only to find there's something that you should have done years ago.
Even if you've already moved into drawdown, if it's worrying you, if you're unsure of how secure your income is, then call us on 0207 440 6250, or email IncomeWizards@masteradviser.co.uk
If it's your money, it's worth double checking.
Belt & braces, don't gamble with your old age income.