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Tony Wickenden: Retirement planning pointers for the year ahead

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Last week I started a look at the content of the Autumn Statement directly or indirectly relevant to financial planners. I focused on some of the pension-related changes but did not have room to cover an importantly reassuring announcement regarding inheritance tax.

The Government introduced backdated legislation in the Finance Bill 2016 to ensure that an IHT charge (under the “omission to exercise a right” provisions) will not arise where a pension scheme member dies with undrawn funds that had been designated to drawdown.

Without this change (though HM Revenue and Customs has stated that it had never had cause to apply s3(3) IHTA in this context) such designated funds would not have benefited from the exemption applying to “available but as yet uncrystallised funds of members age 55 and over”. The change is backdated to apply to all deaths occurring on or after 6 April 2011.

The Autumn Statement also held an announcement on the (almost forgotten) secondary annuity market, with further detail on creating a secondary annuity market and consumer protection published this week.

So while the Chancellor did not have any particular pension bombshells up his sleeve this time, there was enough in there to keep financial planners busy. And let’s not forget that there are other changes to pensions that have already had an impact on financial planning this year, such as the tapered annual allowance and pension input period alignment, or that will take effect from April, such as the lifetime allowance reduction. These changes, in more detail, are as follows:

Pension input periods

A tapered reduction in the level of the annual allowance applying to contributions to registered pension schemes made by certain high-income individuals will take effect from 2016/17. In order to introduce the tapered annual allowance, it is necessary to align all PIPs to the tax year so that 2015/16 has transitional arrangements. From 2016, PIPs will be tax year aligned and will not be capable of being amended.

Fixed and Individual Protection 2016

The lifetime allowance will be reduced from £1.25m to £1m with effect from 6 April 2016. Fixed Protection 2016 will be available to protect funds up to £1.25m from a lifetime allowance charge but contributions and/or accrual will need to cease by 5 April. Individual Protection 2016 will be available to protect funds between £1m and £1.25m valued at a specific date, probably 5 April 2016, but contributions and/or accrual can continue. The application process will be via an online system from July 2016 and HMRC will announce an interim process for those that need to rely on the protection before July.

Death benefits taxation

From 2016/17 lump sum death benefit payments on death at age 75 or over will be taxed under PAYE as pension income of a recipient who is an individual. Payments to trustees will continue to be taxed at 45 per cent but an appropriate tax credit will be given where a capital payment is later made out of the trust to a beneficiary or beneficiaries. This all seems well and good but, like so many “brilliant at first sight” changes, there is a lot more to it than meets the eye. Informed advice will be essential.

Tony Wickenden is joint managing director of Technical Connection

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  1. Well, if you ask me, the most critical part of preparing for retirement is just having a plan. Whether you use a spreadsheet or a tool like OnTrajectory or some other website — you have to get everything out in front of you so you can make smarter decisions. Once you do that, then implementing your disciplined retirement strategy becomes critical.

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