The news has been full of reports this week on the issue of doctors refusing to undertake overtime due to the effect it has on their pension. Whilst most of our concern will be around the availability of doctors it does raise the question of what we can or can’t invest into our pensions and the effect of putting too much in.
The present legislation and limits were introduced by George Osbourne in 2015 and they were aimed at having a fairer distribution of tax relief amongst all contributors rather than just the richest. Unfortunately, it has led to a number of confusing sets of rules that has caught out many investors over the last few years. Some of the key rules are:
• You have drawn your pension and the maximum limit falls to £4,000 (MPAA legislation)
• You earn over £150,000 and the maximum limit is tapered down to a minimum of £10,000
• Maximum value of pension with tax relief £1,055,000
This is before we even look at areas such as carry forward and how to calculate the level of contribution from a company scheme.
The cost of mistakes in these areas are very punitive and lack of knowledge of the legislation is not accepted by HMRC when issuing fines. At present not advising your scheme within 3 months of triggering the MPAA legislation will lead to a £300 fixed fine along with a £60 per day penalty. Contributing over the lifetime allowance can have a fine of up to 55% of the excess.
At present the chancellor is looking at reviewing the effect of these rules on doctors, but what about the rest of us?
At MWS we review your retirement position on a regular basis to ensure that you are taking full advantage of the present rules but also to help you take full advantage of the rules as they change. We can also explain your options to try and avoid any unnecessary tax charges when you make a decision to invest or take your pension.