It’s now 30 years since Nigel Lawson fired the starting gun on the self-invested personal pension (Sipp) revolution. The then-chancellor’s 1989 Budget included a proposal to “make it easier for people in pension schemes to manage their own investments”, with the details following several months later and the first Sipp launching in March 1990.
Since the pension freedoms introduced in April 2015, everyone has a range of options as to how to access their pension. These include taking the whole lot out (subject to a potentially large tax bill) or leaving the whole lot in and then taking chunks as and when required. However, although these reforms are described as giving savers ‘pension freedom’, that freedom is not unrestricted.
In his pitch for the leadership of the Conservative Party, Boris Johnson called for the higher rate threshold for income tax to be raised from its current level of £50,000 to £80,000.
This would be good for workers (excluding those in Scotland where tax rates are devolved) earning between £50,000 to £80,000, as they would no longer have to pay the higher rate of 40% on earnings above £50,000.
But the reforms would contain a sting in the tail for workers’ pensions.
The state pension age should be raised to 75 within the next 16 years to help boost the economy, according to a Conservative think tank.
The pension freedoms implemented in April 2015 have been one of the most popular changes to pensions in recent years. Until the changes, most people had little choice but to turn their pension pot into an income for life by purchasing an annuity. But with interest rates at historically low levels and a poorly functioning annuity market, many were getting disappointing value for money.
Roughly half of married people have opted not to make arrangements for what will happen to their pension in the event of a divorce, according to a survey conducted by Fidelity International.
The survey found that 56% of women and 60% of men said they had no plans for what would happen to their pensions should their marriage break down.
Reaching age 55 was a rude awakening in terms of pension planning and provision. Since then I have been able to pay the maximum £40,000 annually into my self-invested personal pension and to use carryover from previous years. My plan is to pay in the maximum £40,000 during the first six months of the next financial year and then take early retirement in October 2020. I can access a small number of final salary schemes for both taxable and tax-free income, leaving the Sipp invested for a few years before taking it.
New research from the Financial Conduct Authority and The Pension Regulator suggests that 42% of people investing for retirement – amounting to five million people across the UK – are at risk of being conned out of their pension by scammers using a range of tactics.
Alarmingly for Money Observer readers, the research shows that those who consider themselves to be financially astute are just as likely to lose money to these schemes.
The government has stepped in to help stop doctors and other senior medical professionals being negatively impacted by pension rules.
As previously reported by Money Observer, doctors face punishing tax penalties for inadvertently breaching the legal limit for tax-free annual contributions to their pensions.
Over-55s have had to claim back some £480 million in overpaid taxes from the government since the launch of pension freedoms in 2015, figures from HMRC reveal.
As many as 17,000 people had to claim £46 million in tax back between April and June, up from 14,000 people claiming £29 million in the same period in 2018.