Ian Cook
Ian Cook is Chartered Financial Planner at Quilter
This week the chancellor delivered a well sign-posted budget, with many of the key pension constituents already known, but lacking final detail. The financial planning community welcomes these changes given all the variations introduced since George Osborne announced the pension freedoms in 2015. From tapering the amount you can save each year to restricting the pot size with successive reductions in the lifetime allowance, the attractiveness of pensions has been gradually eroded.
While much of the talk was how the changes would encouraging over 50s back into the workplace, and keeping our needed senior NHS staff employed, motivated and not facing significant additional tax charges for just turning up at work, this now provides a huge opportunity to middle Britain.
For many, saving significant amounts into a pension during the early years of employment is not possible. Career building, mortgage payments, kids, and other expenses often come first, and the opportunity of compounding growth is lost. Lots of clients I look after delayed doing pension planning in earnest until their earnings or family commitments change, sometimes that goes hand in hand with moving into the higher or additional rate tax brackets.
From the new tax year, additional rate tax of 45% begins at earnings over £125,139. But this doesn’t tell the full story. When you consider the personal allowance of £12,570 is tapered from earnings above £100,000, this creates a tax trap of 60% tax on anybody earning in or above that bracket.
This is where pensions come to the rescue. They allow you to
