Much has been said about the size of Sir Fred Goodwin's pension pot which has stirred the minds of many pension advisers. At the very least, it highlights the importance of registering larger pension pots which are not yet in payment, for protection with HMRC. This can potentially enable the investor to avoid a tax charge of 55% on income eventually drawn from the pension. The timing, however, is crucial.
It is not known whether Sir Fred has taken steps to protect his investments, but anyone with more than £1.65m in pension funds at 6 April 2006 has until 5 April 2009 to apply for protection from the potential 55% tax rate.
To put this into context, if an individual's pension is worth £700,000 pa, the potential tax charge could be £6.8m which may even be payable up-front - ie when the benefits are first drawn.
People in this position might want to consider how to protect their savings:
- You can elect for enhanced protection, provided you have made no further contributions since 5 April 2006
- Alternatively you could elect for primary protection which would secure your personal lifetime allowance (PLA) at April 2006. Provided your overall benefits don't then increase at a rate greater than the rate that the actual lifetime allowance increases you would also be protected.
- Both of these elections must be made by 5 April 2009
- Some employers offer unapproved benefits which could either be funded or unfunded but don't benefit from the same tax treatment as registered schemes. Some might also argue that the unfunded option is now the cheaper option for the company, although slightly riskier for the recipient.
Time is short for those who may need to take action so a delay in taking advice is not an option!!
For further information: Paul Garwood, director and specialist in pensions and financial planning at Smith & Williamson
Press queries: Kate Harrison / Matt Rowe
020 7131 4228 / 020 7131 4550
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Smith & Williamson is an independent professional and financial services group employing over 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. The group operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Maidstone, North London, Salisbury, Southampton and Worcester
Disclaimer By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
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