Partner Article

The shifting sands of investments...

Nobody would choose to build a permanent structure on sifting sand, but in terms of organising tax and financial arrangements, this is what we are often forced to do. Investments require constant review as markets change, and what is tax efficient today may not be tomorrow, meaning regular appraisals are needed following the annual budget changes and sometimes more frequent adjustments to the system.

Pension rules are one example of the continually shifting sand. Back in 2007, the much hailed ‘A-day’ was set to create a firm foundation for those planning for their retirement. Nothing could be further from the truth and in each successive year, changes have been made either to the amount of premium qualifying for relief, the total amount which could be held within a pension plan, or what the investment requirements are. All of these have needed constant review and, some cases, action needed to be taken just to retain the existing position.

For example, up until 5 April 2011, there was a requirement for pension funds to transfer funds into an annuity or similar arrangement when the individual reached age 75, often at unfavourably low rates of payout. For many, this made pension arrangements unattractive. If no annuity or similar arrangement was taken, then a penal rate of tax was applied to the fund. From 6 April 2011, this requirement was dropped and individuals could continue to draw down on their invested pension fund without the need for an annuity.

In one reported case this week, an individual failed to transfer to an annuity by his 75th birthday which was shortly before the rules were relaxed, and still had to suffer the penal rate, despite the fact that the rules changed.

Further pension changes come into effect from 6 April next year with the maximum limit for allowable premiums decreasing from £50,000 to £40,000, and the maximum permissible investment value of a pension fund decreasing from £1.5m to £1.25m. Those wanting to maximise relief for pension payments need to seek advice sooner rather than later as the deadline is looming. For those whose pension pots exceed the new £1.25m limit, certain elections will be needed just to preserve the standstill position of tax free status.

Pensions are only one example of the shifting sand with many other taxes and investment decisions needing continual input. We are far from any financial environment where ‘doing nothing’ is likely to be the right answer!

This was posted in Bdaily's Members' News section by George Bull .