Three financial firms with the best, swiftest Autumn Statement analyses – Links to IFA Informed Choice, the big pension calculations from Hargreaves Lansdown and an economic analysis from Schroders. – 14647

5th December 2012

 

Informed Choice’s highlights and analysis.

For anyone looking for a quick but very informed view of the Autumn Statement, Mindful Money has three recommendations. First Independent Financial Adviser Informed Choice has put together this excellent guide to the Autumn Statement summarising all the changes. It is well worth a download.

Hargreaves Lansdown on pensions and Isas.

Below Hargreaves Lansdown crunches the relevant pension numbers with some excellent case studies and warning for high earners in Defined Benefit pensions. 


Tom McPhail, Head of Pensions Research says:

"Every time a Chancellor tinkers with the rules governing our pensions, they undermine investors’ confidence in saving for their retirement. Today’s announcement is robbing our future prosperity in order to bail out the costs of past mistakes."

Who will be affected?

Public sector workers, small business owners and those with fragmented earnings patterns have been told by the Chancellor today that it is just their tough luck that they didn’t manage to save into a pension earlier.

Over the next twenty years, many people already in middle age will find that without making substantial lump sum payments to their pensions, they will struggle to hit the kind of pension target they aspire to. By reducing the Annual Allowance, the Chancellor has made it harder for them to manage their income, expenditure and savings patterns through their lifetime.

This will particularly affect long serving members of final salary schemes who experience significant pay rises and older members of defined contribution pensions who are trying to catch up on their pension funding.

It may be the case today that relatively few people are affected by the annual and lifetime allowance limit changes however it will affect increasing numbers in the future.

What is the impact?

Lifetime Allowance

A 65 year old man with a pension pot of £1.25 million will be able to buy a retirement income of £44,957, based on today’s annuity rates. A reduction of £8,833 from £53,790 out of a £1.5 million pension pot.

For members of final salary pension schemes, the effective maximum pension will now be £62,500, based on the Lifetime Allowance factor of 20:1.

Annual Allowance

Saving £10,000 a year less into pension over 25 years will result in a pot £425,000 lower, based on 6% return.

An employee with 20 years’ service in a 60ths final salary scheme and a salary of £55,000 has a current pension entitlement of £18,333 (20/60 x £55,000).

If next year they were to receive a generous pay increase to £65,000, then their pension entitlement would be £22,750 (21/60 x £65,000)

This would equate to an increase in pension value of £70,672 (£22,750 – £18,333=£4,417 x 16)

Tax charge of £12,268

An employee with 15 years’ service in a 60ths final salary scheme and a salary of £60,000 has a current pension entitlement of £15,000 (15/60 x £60,000).

If next year they were to receive a generous pay increase to £65,000, then their pension entitlement would be £17,333 (16/60 x £65,000)

This would equate to an increase in pension value of £37,328 (£17,333 – £15,000=£2,333 x 16)

No tax charge

An employee with 10 years’ service in a 60ths final salary scheme and a salary of £55,000 has a current pension entitlement of £9,166 (10/60 x £55,000).

An employee with 10 years’ service in a 60ths final salary scheme and a salary of £55,000 has a current pension entitlement of £9,166 (10/60 x £55,000).

This would equate to an increase in pension value of £29,344 (£11,000 – £9,166=£1,834 x 16)

No change to carry forward provision

This year and in the next tax year, carry forward provision allows investors to contribute up to a maximum of £200,000.

You can carry forward any unused annual allowance from the previous three years which will give people some scope to catch up on contributions they have missed. You could potentially invest up to £200,000 (assuming a £50,000 allowance from the current year and an assumed £50,000 allowance from the previous three). If these are personal contributions they cannot exceed your earnings.

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