Pension Wise, the government’s pension-advice website, which has so far seen five million visits, could land savers with a shock tax bill because key information is poorly presented, says Ros Altmann, a former government pensions minister.
The site, which was set up when the government’s pensions freedom reforms were introduced two years ago, does too little to highlight restrictive rules that apply when someone begins cashing in their pension savings but continues to pay into their retirement fund, says Altmann.
This approach is popular with savers over the age of 55 who opt to move into part-time work – and so see their income drop – but continue to qualify for pension contributions from their employers. Many do not realise that the annual contribution allowance to private pensions in these circumstances – including employers’ contributions – is usually £4,000 rather than the £40,000 that typically applies.
Those savers who go over the £4,000 threshold may incur significant tax charges, but Altmann says this isn’t obvious from the Pension Wise site. The information is on the site, but is buried in the small print.
This is just the latest criticism of Pension Wise. While the service includes a free telephone or face-to-face appointment, it is for guidance only, and does not provide the independent financial advice many believe is needed to make decisions under pensions freedom.
Tax tip of the week
As part of the new Tax-Free Childcare scheme, which started being rolled out on 21 April 2017, for every £8 a parent pays into an online account from a registered provider, the government will pay in an extra £2 for childcare. In order to qualify, parents must be in work and each earning at least £120 per week and not more than £100,000 each per year, says HMRC. Unlike the previous Employer-Supported Childcare scheme, this arrangement does not rely on employers offering it – any working family can benefit. If your circumstances change, you can withdraw the money you have built up in the account. However, be aware that if you choose to do this, the government will withdraw its corresponding contribution.