As you can imagine, this is a significant financial undertaking for the government. Data from HMRC shows the exchequer paid out £38.6bn in 2016/17 (a slight increase on the previous year’s total of £38.5 billion, suggesting that the cost has stabilised), and many feel that the expensive system is unsustainable.
Are tax relief reforms likely?
The current form of the pension tax relief scheme certainly has its critics. Speaking to the Financial Times, Labour peer and pension industry expert Jeannie Drake said she believes there is a compelling case for tax relief to be reformed so that, instead of different relief rates based on income, a flat rate would be introduced, increasing the amount lower earners can save but reducing the amount for those on higher salaries (the government previously considered taking this measure in its 2015 review).
But not everyone is so welcoming of an overhaul. Royal London director of policy and former pensions minister Steve Webb commented that the pension tax relief scheme is often viewed as a “honey pot” by chancellors, “convenient to dip into whenever they are short of money”.
However, Webb said that the high number of cuts to pension tax breaks in recent years has undermined people’s confidence in pension saving and believes that the chancellor should refrain from making further changes to tax relief for the duration of this current parliament so savers can “plan with confidence”.
As Webb mentioned, cuts for wealthier individuals have occurred in the past.
The annual allowance (the amount contributed to a pension scheme receiving tax relief) was slashed from £255,000 to £50,000 in 2011 and then down again to its current value of £40,000 in 2014 (and high-income individuals with income over £150,000 will have their allowances reduced even more).
Furthermore, the lifetime allowance (the limit on the amount someone can withdraw from their pension without facing extra tax charges) has seen several reductions over the past few years, reaching a low-point of £1m in 2016.
So, with the growing likelihood that higher earners could soon see drastic cuts to the amount of tax relief they receive on their pension contributions, it makes sense for them to make the most of the current system while they still can.
Making the most of your UK pensions savings
Pension tax relief is by no means simple, and it’s hard to say who will be affected by future changes until any measures have been set in stone. Whatever your pension concerns may be, and whatever the future holds for the pension tax relief scheme, Blacktower’s financial advisers can help guide you in the right direction when it comes to your personal expat pension planning.
If you are saving for your pension in the UK, we provide advice on how best to handle your entire pension pot. We can answer questions on tax relief and the best way to manage your retirement savings.
For example, you may wish to pool your pensions into a SIPP and we will take the time to analyse your current pension savings to help you make the most appropriate decisions in relation to every aspect of your retirement investment planning.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
Last weekend The France Show brought its exhibitors and visitors the best of France – food, wine, property, holiday ideas, travel offers and entertainment – all under one roof. Visitors experienced a great French market, cookery demonstrations, tutored wine tastings, language and travel theatre, and even a chance to play pétanque!
Over the years, the trend for South African nationals to seek out new lives and experiences in Portugal has continued to grow and grow; I myself made the move back in 1988 as a fresh-faced economics graduate from Witswatersrand University in Johannesburg, and I’ve never looked back. It’s easy to see the appeal for South Africans – the year-round sunshine and vast expanses of Atlantic coastline are a familiar part of daily life, just as they are back home – but the secure location and easy access to the rest of Europe is something really special. Being as there’s over 11,000 KM of distance between the two countries, a mere 12 hrs by plane give or take, there are going to be some big differences in the way of life, even if there are those obvious similarities. It’s probably advisable for any emigrant to arrive armed with a willingness to accept how things are done in their new home country rather than try to carry on as before and hope for the best. This is never more true than when dealing with your finances.