The pensions lifetime allowance

How might the big freeze affect you?

Most people get nowhere near breaching the pensions lifetime allowance, but that’s likely to change over the next five years. 

The lifetime allowance is currently £1,073,100. This is a limit on the amount of pension benefits you can withdraw from all of your pension schemes – whether as lump sums or retirement income – without triggering an extra tax charge of up to 55%. 

In March’s Spring Budget 2021, however, Chancellor Rishi Sunak froze this allowance up to and including the 2025/26 tax year and removed the annual link to the Consumer Prices Index (CPI), which is used to determine how much the allowance increases by each year. 

This will be bad news for some and it stands to reason that this ‘stealth tax grab’ will affect more savers as time goes by, making it more important than ever to consider how best to utilise their pension tax allowances if they’re to save for their retirement in the most tax-efficient way.

Had the UK’s public finances not been ravaged by COVID-19 over the last year, the lifetime allowance would have increased in line with the CPI rate of inflation from the previous September on 6 April 2021, which was 0.5%.

It would probably have continued to rise modestly every year, giving savers more room to continue to benefit from making tax-efficient pension contributions and investment growth. Instead, the Treasury hopes to recoup around £800 million by the end of the five years, starting with £80m this year and rising to £300m in 2025/26.

The five-year freeze means, if you already have a sizable sum saved in your pension pot, you have an increased risk of exceeding the lifetime allowance and potentially facing a tax charge at some point in the future. 

Who will it affect?

The freeze announced will have a small impact this year on those not already affected but over the next five years, it will hit more of those with the largest pension pots.

That includes savers with pension wealth close to the £1,073,100 limit when they are approaching retirement and those with pension wealth over this limit when they retire. 

These individuals might have been expecting the lifetime allowance to continue to increase when the CPI increases, and it might influence their pension savings behaviour.

Nigel Peaple, director of policy at the Pensions and Lifetime Savings Association, expects the freeze to “affect about 10% of savers, not all of them wealthy, but usually those on higher salaries with a lot of pension savings”.

For example, it’s fairly easy for a well-paid public-sector worker with a defined-benefit pension scheme to accrue lifetime entitlement in excess of the lifetime allowance by 2025/26. 

Young high earners, highly-paid members of the NHS such as doctors and consultants, and headteachers – many of whom will be on defined-benefit pensions – might be affected. 

Monitor your pension pots

Any risk of breaching the lifetime allowance is higher the longer you plan on waiting to take your pension benefits, assuming you carry on making contributions. If you’re close to the lifetime allowance, you should regularly monitor the value of your pots to avoid breaching the threshold.

Most people contribute into defined-contribution pensions from their salary which grows over time. For these, especially those which have been consolidated into a single pot, the value is relatively easy to view online. 

For defined-benefit schemes, which are usually schemes where the amount of retirement income you’re paid is based on how many years you worked for your employer or your final salary, you might have to rely on annual statements. 

The value of a defined-benefit scheme for lifetime allowance purposes is usually calculated by multiplying the projected first-year pension payments by 20 and adding any tax-free lump sum taken at the start, but you should check this with your scheme administrator. 

Once you know the total value of your pension pot, it’s easy to see how close you are to the £1,073,100 limit. If you’re one of the few who might be near the cap and are planning to retire before April 2026, you may need to consider your options to avoid being charged. 

Tax charges

Any pension benefits you take before 2025/26 that exceed your lifetime allowance will trigger one of two types of tax charge.

A 55% charge will apply on excess funds that are taken as a lump sum. A 25% charge awaits if excess funds are taken as retirement income, which will then be taxed at your marginal income tax rate.

For higher-rate taxpayers, these potential penalties are unlikely to change their behaviour, although it is possible to manage how and when benefits are taken to postpone the charge.

People aged 55 or over can choose to crystallise up to 100% of their lifetime allowance and leave any excess uncrystallised if their pension scheme allows benefits to be taken at age 55.

Changing behaviours

For well-paid people working in the NHS, the freeze is likely to prompt some to take early retirement and others to reduce the number of hours they work or give up additional responsibilities.

Others might simply choose to stop contributing to their pension pots, perhaps in return for a pay rise or another employee benefit. 

An alternative is to consider paying into other tax-efficient savings, such as ISAs, to provide a retirement income.

If none of those options are on the table, continuing to pay into your pension and exceeding the lifetime allowance might offer more benefits than stopping contributions altogether. 

Testing the lifetime allowance

Pension providers must test against the lifetime allowance whenever you decide to start taking your pension benefits sometime after your 55th birthday. 

This benefit crystallisation event checks how much of the lifetime allowance you have left, whether you have breached the allowance and if a tax charge needs to be applied. 

This process occurs every time you flexibly access your pension pot, with your pension provider giving you a statement showing how much of the lifetime allowance you have used. 

Lifetime allowance at age 75

Historically, once you reached the age of 75 you had to buy an annuity. That’s no longer the case, but turning 75 remains a key point as far as the lifetime allowance is concerned. 

When most people reach the age of 75, HMRC tests any growth you have enjoyed on your pension funds. 

Your pension providers will carry out a final test to assess the extent of unused funds in your pension pot and your drawdown account. If it shows you have used 100% of your lifetime allowance at 75, a 25% tax charge applies on the excess.

The good news for younger high earners is that the freeze is only for five years and it’s hoped the annual link to the CPI increases will be reinstated, meaning the lifetime allowance should be higher by the time this test is carried out. 

Speak to us about planning for your retirement.

Thornton Holmes Dip PFA Certs CII (MP&ER)

www.orchidfinancialservices.com

Tel: 03300 244244

Important information 

The way in which tax charges (or tax relief, as appropriate) are applied depends on individual circumstances and may be subject to future change. Pensions eligibility depends on individual circumstances and pension benefits cannot normally be taken before age 55. 

 This document is solely for information purposes and nothing in it is intended to constitute advice or a recommendation. You should not make any pension decisions based on its content. 

 While considerable care has been taken to ensure the information in this document is accurate and up-to-date, no warranty is given as to the accuracy or completeness of any information.

Changes to SIPP drawdown....be aware!

HM Treasury responded to consultation on proposed amendments to retirement flexibility at the end of last year.

There are quite a number of amendments :

These new proposals are due to take effect from 6 April 2011:

- Unsecured Pension and Alternatively Secured Pension (ASP) will be replaced by a new system of ‘Capped Drawdown’.

- Maximum withdrawal will be based on 100% of GAD rather than 120% as current, and there will be a graduated move to the new levels for those already in drawdown.

- Reviews of income will be 3 yearly, or annually once aged 75.

- There will be a 55% tax charge on lump sum payments on death for funds in drawdown irrespective of age – rather than the 35% currently in place (albeit this level only applies pre age 75 at the moment).

- It will be possible to make a lump sum payment tax free to a charity – as is currently the case for those in ASP.

Rather more strikingly, ‘flexible drawdown’ will also be introduced:

- Where an individual can demonstrate that they have secured pensions of at least £20,000 p.a., known as the Minimum Income Requirement (MIR) from one or more sources, the cap on drawdown will be removed.

- This means an individual can draw as much pension as they wish from arrangements other than the MIR, until the fund is exhausted – subject, as normal, to income tax – although Protected Rights funds will be excluded from this.

- Only secure pension income (such as an annuity, occupational pension or state pension) will be considered in terms of the MIR.

- Individuals will not be able to accrue further tax relieved pension savings if in flexible drawdown.

As usual, advisers are presented with a number of matters to consider:

- Are there advantages to clients going into drawdown now so as to obtain the higher level of GAD available?

- Are all expressions of wish up to date – in particular, are there any clients who might wish to take advantage of the tax free charity payment on death?

- Some clients may suffer a drop in actual income (or an expectation of income) when the rates drop to 100% of GAD – do these clients require review and consultation?

- Some clients in drawdown may be considering a transfer to a new provider. Is it best to consider this sooner, rather than later, so as to retain the remainder of the 5 year period at the 120% GAD level?

A great time to get involved with networking.....

One of the most valuable things about building business networking relationships is the priority you get given by your fellow networkers within a group, for certain offers and opportunities. I would like to thank Paul Sharma of Hyundai London who gave the Business Club North London some priority discounts on new and used vehicles and is always on hand to guide and help people through the issues of purchasing a new vehicle.

A close group of like minded individuals builds confidence and trust over a period of time and Paul has often commented how many connections and subsequent business opportunities have arisen from contacts and meetings arranged through The Business Club. This is the point; networking, as BNI founder Ivan Misner has always pointed out is about 'farming' NOT 'hunting' and small things over periods of time can yield great rewards.

Networking is about building Knowledge and confidence which can lead to trust and relationships. This is what ultimately turns into business and repeat business. It is not about turning up to an event, 'selling to the room' and hoping to walk away with an order.

If you want to learn more about education based networking and relationship building then call us

on 08432 181672 and meet many like minded people who are all there to build their brand, offer help and advice to others and above all position themselves to be in the best possible place as we come out of recession.

Oh...and if you want a great deal on a new or used car call Paul Sharma at Hyundai! 020 8457 6660.

See you all at the next Business Club meeting! Don't miss it!

Why 1300 + marketing professionals can't agree...

David Berkoff Business Club member tells us why 1,300 plus marketing professional can’t agree… :

What is marketing? This was the question placed on the Marketing Communication Group social networking site on Linkedin and the responses that came in made for some very enlightening and interesting reading.

The person who posted this question, Mr John C in Philadelphia, must have a very full in tray of emails, but when I asked the question to the group “Surely with over 1,200 replies Mr C should have an idea of the answer by now...” I had a response from Dr. Brian M in Melbourne, Australia, (the self promoted spokes person and commentator of this question), that Mr C has long since left the building, but the discussion continues…”

Long left the building indeed. Maybe he’s gone down to the job centre to look for another career?

We had the simplistic answers like Michelle E in Bristol UK who says “Marketing is Life” err yes, why don’t you get one.

What about Nacy S from LA who says 'Effective' Marketing is creating the flame of desire by inspiring your potential customers to want to buy what you are selling and implementing it in such a way that is never invasive or hard sell and so much so that they are so excited about having it they can't wait to buy it!

Then there was Tim E from Cincinnati who had this intillectual banter with the Doctor that left me wondering what is this all about? Modern Centric Marketing, the old 4 P’s, the Gen-Ys and Zers marketing?

I think what they are trying to promote is a modern way of marketing. It’s where companies are now listening and engaging with their customers and then delivering what they want.

Ok, but isn’t that what market research companies have being doing for the last 50 years or more?

To me marketing is a mixture and calls for different strategies depending on what you are selling.

Take the guy selling fruit and veg on a busy street market. He’s in the right location to sell. He will get on his soap box and shout out at the top of his voice; “Luv-er-ly bananas, luv-erl-y bananas, I’m giving ‘em away… Two bunches for price of one… BOG OFF you lucky people!.”

Alternatively, if he took the Centric or “Modern” marketing approach – he would probably say, in a quite softly spoken voice, “Excuse me, I hope you don’t mind if I ask you, but what fruit you would like me to sell?

Now if you take the car sales person selling Porches in that same street market. Yes, wrong location. And if he adopts the same selling techinque as the Fuit and veg man of getting on his soap box what do you think will happen?

Do you get my point?

Carly S a Marketing assistant from Chicago starts to make sese to me when she said, “Maybe the question should be what is marketing. Marketing is everywhere, in so many forms, types, languages, places, symbols, advertisements, slogans, campaigns, etc. I really do not think there is a wrong answer, that's why it’s such a interesting topic and always will be due to constant changing environments”.

But Dr Brian had to reply and said to Carly - marketing is about exchanges. If there isn't an exchange - such as I give you a gift because it is say Christmas, that is not marketing. Whatever…

So at the end of a the day my advise to you is; Be careful what questions you ask on these groups because you may have opened a can of worms. Or then again, maybe you like cans of worms?

David Berkoff

For more insites into the marketing world visit my blog site at www.berkoffdesign.co.uk/blog and meet me at The Business Club North London! www.businessnetworklondon.co.uk

The Business Club - 'Building Better Business!'

What a fantastic Speed Networking event we had on Oct 6th at Hendon Hall North London. Held jointly with the North London Chamber of Commerce it was a great success with many new faces and buzzing with enthusiasm!

What makes things even better for us is recieving such glowing testimonials as this, proving that we can genuinely help people 'build better business!' :

Hi Thornton

I would just like to thank you and Rachel for organising the event on Wednesday. It is the best speed networking event I have ever been to and I really enjoyed it.

Since I joined the Business club, only last month, I have already got one new client, Cobra Support. I have also had a referal from Carolyn Whycer from Inheritance planning. She put me in contact with a friend of hers who needs a PA. I have a meeting set up with him on 2nd November.
There were lots of other people who I spoke to on Wednesday who I will be making contact with and I will keep you updated.
I also refered Rob Glazer to Roy Block from Suits to your door, as he needed a new suit and hates to shop! I think Roy is coming to the next meeting.

Since I started up my business, nearly 2 years ago, I have been to loads of networking groups in order to meet lots of people and to see which one is best for me. The Business Club is the friendliest and most professional one that I have found. It certainly is the best one for me!

Thanks again to you and Rachel for all your hard work.

Regards

Sue

p.s If you want to change any thing and send this out that's fine with me.
Sue Cash
Personal Private Assistant
"making time for you"

CE Associates
43 Ambleside Gardens
Wembley
Middlesex
HA9 8TL

07768 100899
sue@ceassociates.co.uk

www.ceassociates.co.uk

Do all companies need a USP?

One of our active members here at The Business Club, David Berkoff asks this very question on his own unique blogging site:

Berkoff Design may not have a USP, but maybe having one is a bit of an assumption that you are "unique" or "the best" in your field. I am quite happy in my ability to produce excellence, but I also aspire to and acknowledge great designers and marketers of our time like Saatchi and Saatchi and Sir Terence Conran. Do you agree?

This was the question I posted on Linkedin Q&A section.

Firstly, thank you, to all who so eloquently replied to the above on Linkedin - your comments certainly got me thinking further into the subject of USPs.

Ok, so it appears that the marketing world consensus is a definite “yes” and in favour of companies to having a USP. And who am I to disagree?

So what is Berkoff Designs USP?

With literally thousands of Design and Advertising Agencies in London what makes each of them different? And what do they claim to be their USP?

Being in a creative industry surely they can't be contrite or bland. Surely they wouldn't make a claim they can't substantiate such as Avis the Car rental company who try harder?

Let us take a look at that claim “We may not be number one but we try harder”. At first reading this seems a very clever copy slogan but I would ask the following questions about this claim?

Who are they working harder than? Can they prove that they work harder? And If they work harder now, weren't they working hard before?

And hey, they can't be trying very hard because they still aren't number 1 (the best) are they? So Avis, what are you saying?

This illustrates the dangers of contrite advertising propositions that are impossible to prove and there are many other examples of this type of statement in advertising to be sure.

Back to Berkoff Design. We help SMEs to look strategically at there marketing and communications. We can produce a one or two year marketing plan on how best to spend a marketing budget and avoid what I call “Ad hoc Advertising”. (see my blog on Ad hoc Advertising)

As you will see from my web site propositions I encourage companies to
B proud, of their product or services. B different, from their competitors and through this they will B noticed and with Berkoff Design they can B assured of the highest quality of work and service.

These are my values in creating excellence. I'm not using advertising talk like “Brand personality” or creating a "Mission Statement" or USP because isn't that what all marketing agencies do?

Thinking this through it then dawned on me. Berkoff Design does have a USP and it’s me!

No one thinks the same as me, no one has the same creative style as me, or had the same experiences in their career as me, in fact no one else in my profession is called David Berkoff.

I am totally unique - a one off. Does this count?

In the old sense of the word is Networking dead?

In reality is it not more about CONNECTING?

So what is the best way to connect? In order to forge a relationship you need to make an impression.
To make an impression you need to have done something that will make you remembered.

So how do we do that? – There are of course the basics to adhere to such as :

Ask open questions such as ‘How did you get started in the widget business?’
Maintain eye contact
Wear something distinctive
Listen
Etc etc…

But here are three of the favourite things I like to do in addition to make sure someone remembers me :

1. Write your number on the front of your business card. Telephone numbers are often in very small print and when the contact gets back to their office with a pile of cards whose will stand out?

2. Try to introduce every new person you meet to at least one other person. No one forgets this type of introduction – when they get together who will be the common denominator?

3. Don’t ask them about their business, ask them about their PASSION! Sometimes this can of course be the same thing but either way you will engage and be remembered. For example, someone is far more likely to grab my attention if they talk about Harley Davidson’s than financial advice!

In Summary

It’s not about Who you know
It’s not about who knows you
It’s about what you do for the people you know……..

If you give with the hope of something of equal value in return you may be disappointed.

Just give for the sake of giving!

Happy Networking!

Thornton Holmes

Education Coordinator BNI Synergy


“Whatever we have accomplished is because other people have helped us.”

Walt Disney.