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Five pension changes that could affect your retirement savings

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Written by: Paloma Kubiak
30/10/2018
Pension savers had expected ‘spreadsheet Phil’ to wield the axe on generous incentives in yesterday's Budget but overall, changes to pensions were pretty subtle. Here are five announcements that could impact your retirement savings.

1) More low-paid/part-time workers to miss out on pension tax relief

The increase to the personal allowance from the current £11,850 to £12,500 in April 2019 means more people could miss out on pension tax relief.

Currently, anyone earning more than £10,000 per year has to be enrolled into a pension. But they don’t have to pay income tax until they earn more than £11,850 (the personal allowance). They can, however, still benefit from tax relief on their pension contributions – but it depends on the tax arrangement their employer uses.

If their employer has chosen a scheme such as a Group Personal Pension, where tax relief is delivered through the ‘relief at source’ method, workers get the full basic rate tax relief on their contributions. But if the workplace pension uses the ‘net pay arrangement’, then workers don’t get tax relief. See YourMoney.com’s guide on Why it matters how your employer sets up your pension for more information on this.

So while the increase to the personal allowance means more take home pay and less tax, it actually brings more people into the scope of this pension tax anomaly – those earning between £10,000 and £12,500, not just those earning between £10,000 and £11,850.

As such, if you’re a low-paid or part-time worker, you should check which tax arrangement your employer uses as it could mean less money going into your retirement savings.

Steve Webb, director of policy at Royal London, said: “It’s absurd that whether or not a low-paid worker gets tax relief depends on the lottery of how their pension scheme delivers tax relief, and the Chancellor has put more workers into that position. It’s time for the government to address this issue as a matter of urgency.”

2) State pensions to be included in the pensions dashboard

The Budget 2018 documents revealed the government is committed to the pensions dashboard initiative, an online hub that will allow people to see all their pension pots in one place. In the last few months, there’s been concern among some in the pension industry that state pension information would not be included on the dashboard. However, the government confirmed it would feature on the new hub.

It has allocated £5m to the project in 2019/20 and the Department for Work and Pensions (DWP) will consult later this year on the detailed design for the dashboard.

Kate Smith, head of pensions at Aegon said: “We’re pinning our hopes on the pensions dashboard to solve the issue of lost pension pots and it’s also likely to lead to greater consolidation of small pension pots.

“This funding indicates things are moving in the right direction and the dashboard will become a reality soon.”

3) Pensions for the self-employed

The DWP will this winter publish a paper setting out the government’s approach to increasing pension participation for the UK’s army of self-employed workers.

Tom McPhail, head of policy at Hargreaves Lansdown, said: “The self-employed have been left behind by pensions auto-enrolment and don’t get the boost of employer contributions, so their retirement savings are in dire need of some attention.”

4) Pension cold-calling banned

The government said cold calling is one of the “most common methods used to initiate pension fraud” and in order to protect people from fraudsters, it’s looking to implement legislation to make pensions cold calling illegal.

5) Pension Lifetime Allowance

The Lifetime Allowance (LTA) is the maximum amount of pension savings you can build up without a tax charge.

The tax charge for exceeding the LTA  depends on how the income is taken: 55% if taken as a lump sum or 25% if it is taken as income.

Over the years, it has been reduced significantly and currently stands at £1,03m. However, the allowance will increase in line with CPI for 2019/20, rising to £1,05m.

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