Worried about your pension? If you aren’t, you probably should be. The last few years have seen a tsunami of pensions reform, culminating in Chancellor George Osborne’s dramatic pensions freedom policy and the (not-yet-fully-understood) removal of inheritance tax from all pensions assets. But it isn’t over. A quick flick through the tryingly awful manifestos of our top politicians confirms that, whoever wins this week, there is another tsunami on the way.
Labour hasn’t said it plans to reverse any of Osborne’s changes, but it would surely not be much of a surprise for a Labour government to replace the old death tax on pension assets (it was 55%) with a standard inheritance tax. Labour does, however, intend to have a go at the pension savings relief used by “the rich”. Anyone earning over £150,000 a year is to have their relief cut from their marginal rate to the basic rate of 20%.
The Conservatives aren’t going quite that far, but they aren’t letting “the rich” off easy either. Anyone earning more than £150,000 will have the amount they can put in their pensions reduced by £5,000 for every extra £10,000 they earn until they hit £210,000. Anyone earning that or more will only be able to claim on £10,000.
The Lib Dems are lowering the bar on the definition of “rich” and chucking in a little redistribution for good measure. They’d like everyone to get a flat rate of cash back at a rate of something in the region of 30% regardless of their earnings (I’m not calling this tax relief because clearly someone paying 20% tax would get back more than they put in). That effectively taxes higher-rate taxpayers’ pension contributions, and hands the cash over to basic and non-taxpayer pensions.
So, what can you do about any of this? First, thank your lucky stars that neither Ukip nor the Scottish National Party seem to have much interest in private pensions (Nicola Sturgeon’s long list of new taxes doesn’t cover this). Then, if you are a higher-rate taxpayer or an additional-rate payer, think about putting a little more into your pension pot at current relief rates while you can. Whoever wins, “can” will soon turn into “can’t”.
If you are 55 or over, and dithering about taking the first 25% tax free from your pension, you might also want to talk to an adviser about moving the withdrawal forward. No parties have mentioned this, but given that this pile of cash was untaxed on the way into your pension, it seems remarkable that no one has yet attempted to tax it on the way out. It isn’t exactly a vote winner up front. But I bet someone is thinking about it.