Gov’t set for long-term gain on pensions

With policymakers debating the removal of the 50 per cent tax rate and the reduction of the annual allowance, Adrian Walker, head of retirement planning for Skandia, forecast that significant numbers of higher and additional rate taxpayers will use the coming weeks as an opportunity to maximise their contributions.

Once they have done this, he said they would opt out of the pension system by applying for fixed protection.

While the period of contribution rises would be a short-term pain, Mr Walker said once these wealthy individuals have opted out of the system, there will be a lower cost to the government in future, as the amount of tax relief the government will have to give away will decrease.

Mr Walker said: “It is interesting to see the high numbers of people who have already applied for fixed protection, as it is still only February.

“We normally expect to see a spike in these sorts of applications as the end of the tax year approaches.”

Mark Ireland, IFA for London-based BLK Wealth Management, agreed, saying: “I have certainly seen a spike in my clients’ interest in taking advantage of the carry forward rules in order to maximise their use of the reliefs at 40 per cent or 50 per cent for this year.

“If you’re paying tax at these rates, and can afford to use the allowance, it can make a lot of sense. Whether they will end up opting out of pensions completely will depend on how close they are to retirement and the total value of their pension funds to date.”