The State Pension age for women will rise to 65 by November 2018. It will increase for men and women to 66 between November 2018 and October 2020. In the Autumn Statement 2011 it was announced that the pension age will increase to 67 between 2026 and 2028, eight years earlier than before.
All of this emphasises the need to save into pensions and other forms of long-term savings. The recent budget left pension and ISA savings unaffected, and brought to the fore Enterprise Investment Schemes, which provide valuable tax reliefs for people already using the maximum allowances for pensions and ISAs. There have been a lot of changes to the rules recently, and combined with the difficult economic and investment climate, many people feel uncertain about pensions and long-term savings.
The annual allowance for pension contributions is £50,000, and any unused contributions from the previous three year can be carried forward. A potential issue with carrying forward unused contributions is the interaction with the pension input period (PIP) of your pension scheme, something well worth checking.
The lifetime allowance has been reduced from £1.8m to £1.5m in April 2012. If you are at the maximum, you will need to consider other ways of saving tax-efficiently. If you applied for Fixed Protection, the rules are:
- no new contributions can be paid to a money purchase arrangement
- the amount of benefit that can accrue in a defined benefit pension is limited to the ‘relevant percentage’, which is the rate of increase specified in the scheme rules as at 9 December 2010, or CPI in the year ending in September of the previous year.
Defined contribution contracting-out ended on 6 April 2012. Protected rights are now treated the same as non-protected rights.
The Pension Act 2011 introduced automatic enrolment of employees to pensions, and minimum contributions by the employer and employee which will be phased in over a period of years. When it comes to taking the benefits, there is no longer any need to buy an annuity at age 75. The rules for income drawdown have been made more flexible, but the maximum income available from capped drawdown is much lower than before. This can cause serious problems for people when the pension income from their pension is reviewed.
For more information, or if you have any questions on these changes, do contact us.
Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.
