As will probably not have escaped your attention, the UK is heading towards a general election, and all the major parties are rolling up their sleeves and preparing for the fight. In the coming months we can expect to see a great deal of policies mooted and promises made, and last week Labour released a big one.
Should Ed Miliband’s party surge into a majority come May, they have announced that they will cut student fees by £3000, bringing them down to £6000. Maintenance loans will also receive a boost. How will this be paid for, you ask? According to reports on Friday, the money will be coming out of pensions. Specifically, the “additional rate” taxpayers’ 45% relief.
What this involves is reducing tax relief for very high earners- specifically those who earn more than £150,000 – so they therefore only qualify for 20% tax relief. The cut will result in those whose salaries are between £150,000 and £180,000 per annum gradually lose tax relief on their pension contributions – and the more they earn, the more they will lose.
Every year, there is a limit on what you can invest in a pension, and there will be some tax relief on this amount – as long as you’ve paid enough income tax. Presently, the maximum is £40,000, although it was £50,000 in previous years. In addition to the allowance from the current year, you can also carry forward allowance from the previous years which you didn’t use – so if you only invested £20,000 in your pension last year then the additional £30,000 carries through to this year making your limit £70,000.
Ed Miliband and the Labour Party have also proposed further reducing this allowance, as well as how much people can save over the course of their lifetime – the limit at the moment is £1.25 million). After these limits, there will be no tax relief at all.
Obviously it remains to be seen whether Mr Miliband and his party get the majority that they need, but should Prime Minister Miliband be sitting in Number 11 come May, we can expect a whole new set of shake-ups to pensions to follow on from the current chancellor’s reforms – detailed here in one of CDG’s older posts.
If something isn’t making sense or you’d like to discuss anything else to do with your pension and retirement, do give us a call on 0115 977 1155 or drop me an email on richard@cdgfs.co.uk
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