In this blog, Alasdair Mayes looks at how you can prepare for potential pensions tax issues to help your members avoid nasty surprises come 5 April.
A recent article in the Telegraph claims hundreds of thousands are drifting towards costly pensions tax trap. Last year’s further reduction in pension allowances means that, employers and trustees need to look at changing how they communicate to their members about pensions tax if they are to avoid this trap.
Employers and trustees may choose to let their members work it out, or they may provide plenty of guidance. However, the reality is that members with unexpected tax bills will probably be looking for someone to blame. So it’s best to be prepared.
What are the issues likely to store up trouble ahead?
- The tax regime is so complex individuals will trigger tax charges, often significant, without realising
- Disclosure requirements have not changed in response to the new regime, so Trustees and providers doing the legal minimum will not be pro-actively issuing the information individuals need
- It’s human nature to leave your tax return to the last minute, but that will mean individuals will run out of time to ask their pension scheme to pay any tax due on their behalf. This “Scheme Pays” option not only helps cash flow but can also be more tax efficient
There are a number of simple ways that employers and trustees can help their members including:
- Issuing periodic reminders of the reduced allowances and the need for individuals to assess their own position
- Pro-actively issuing details of the value of pension savings, especially to higher earners, in a timely fashion (forward looking statements could be really helpful)
- Offering to cap pension savings at £10,000 pa, so individuals can’t say they did not realise they were in line for big tax bills
I’ve outlined more on what you might want to consider before 5 April 2017 covering these issues and a reminder of other fast approaching deadlines.
Finally, my advice is to keep an eye out for any more tweaks to pensions tax. On 8 March we have the first of two budgets due this year from the Chancellor, Philip Hammond. There is already the odd rumour about potential changes to the pensions tax regime. Personally, I’m hoping that he leaves pensions alone, as there is already more than enough to keep on top of with the changes already announced.