I came across a set of statistics recently that shocked me. I'm not one for stats normally but I do know that these won’t be far off from the mark.
The figures are astounding. Last year just fewer than 200,000 higher rate taxpayers failed to claim £229million in pension contribution tax relief! Can you believe it?
Obviously we are involved within this market and know this is something busy higher rate taxpayers fail to pay due attention to. Daily chaos within business and then a family to look after etc. I am the same.
Further, I have a good friend of over 25 years – Mike Holden – who I worked with at Barclays for over 10 years, who is now a senior inspector of VAT taxes for HMRC, who has in the past also discussed this with me.
Mike has said to me "What on earth are they [higher rate taxpayers] doing not contributing in the first place [to pensions of any sort] and then even if they do, not then claiming the relief that is put aside for them? Madness"
I say “I know Mike, but it's hard getting through to people in the first place to even get an appointment with them, and when we do the word 'pension' itself can sometimes be a deal closer”. We can end up defending our position as Advisers as the great British business public proceed to tell us that their “business is their pension”.
I have discussed with Mike that most occupational pension scheme contributions normally receive the full tax relief automatically, but then it is always worth checking – because at the same time some GPPs (Group Personal Pensions), or other work stakeholder pension schemes, will typically only provide the basic rate of 20% automatically.
Higher rate taxpayers using a Self Invested Personal Pension (SIPP), or Small Self Administered Scheme (SSAS), will also have to claim back the extra 20 per cent through their tax return – something that we are told is being missed on a significant scale. Unbelievable. For what it’s worth I think a lot of Accountants are completely useless too.
These HRT's have to complete their own individual annual self-assessment tax return, or they can call HMRC to get back previously unclaimed relief.
It’s worth pointing out that as we stand the 40% tax rate applies to annual earnings above £41,451 and the 45% rate takes over at £150,000.
One of my firms jobs when wearing what we call our 3rd hat, - acting as an adviser or rather an 'implementer' of appropriate financial products is to encourage the clients we engage with to invest into themselves, and their futures, using a variety of different wrappers and pensions are always considered.
This is because they reduce personal and corporate taxation, whilst also creating a fund from which we can secure an income in retirement.
Remember the SSAS, the SIPP, the Personal Pension, or whatever it is, is simply an empty shell, or an empty box, within which we place investments of stock, funds, art, wine, commercial property etc depending on where you feel comfortable.
Obviously what is right for one is not necessarily right for the next person. There are many options.
Going into a New Year we are discussing something of great value with our clients, and it’s this...
Previous years of tax relief that have been missed can be claimed back.
The Government allows those who fill out annual tax returns to claim back relief on contributions dating back to the 2011/12 tax year. But guess what? It’s not advertised that widely. Why do you think that might be the case?
Meanwhile those who don't fill in tax returns can go back even further, claiming tax relief as far back as 2010/11 – but only if we submit a claim before October 31 2014.
If you still harbor the 1980's horror stories about pensions, or have been brought up having the – “pensions are bad” drilled into your thinking, you have been wrongly and totally mis-advised. The Government itself has spent millions trying to correct this thinking.
This terrible drag stems from the 1980’s. High fund and product charges, commissioned sales people selling pensions, and also markets crashing at a time when certain people were due to retire. Think 1987.
There are also millions of people who did really well, and still do really well, thorough having good funds or other assets in their pensions, low cost pension wrappers, and a retirement that was or is being timed well with the market conditions related to the assets chosen to hold.
Just imagine if you had held Gold as a main asset in your pension fund and had retired before stock markets bounced back over the last 2 years.
It’s what you put inside the pension, how much it costs to run each year, and when the assets are dis-invested that count. That’s it.
For what it’s worth our own online SIPP wrapper is completely FREE of charge, with over 15000 different investments for you to choose from – all matched to the level of investment risk you wish to take, if you wish to work it this way.
Or you can have direct access to pre-built investment strategies from SEI, Close or Goldman Saccs with total annual fund and platform charges around 1.5% or thereabouts – around 40% - 50% less than certain glossy adviser brands.
Also remember that from April 2014 going forwards you can only grow your fund to the lifetime allowance of £1.25Million as anything over will be taxed by our friends at HMRC at 55%!
So the message I have for you just as we pass into 2014 is simple.
If you contribute at the moment and think you have missed claiming higher rate relief call us and we can help you secure this FREE money.
If you (a)pay higher rate tax and (b) don’t contribute towards your future through a pension wrapper of any sort, you are clearly insane and there may be no hope for you.
I am joking of course. We would be happy to help you too.
As part of your pension review, and because we are also qualified and licensed estate planners...
...We are also including your lifeplan review
Your Will and Draft Letter of Wishes are tight. This will secure your legacy, minimise death taxes where possible and ensure young children are protected and cared for by Guardians of your choice, as opposed to leaving this crucial decision to somebody within the Local Authority.
Lasting Powers of Attorney for Property and Financial Affairs are in order. This will make sure that if you were involved in an accident, or for example suffered a stroke, decisions relating to your business and personal assets would be made quickly, by a family member or other trusted person, without the cost, inconvenience and typical 6 month delay when applying to the court of protection.
Lasting Powers of Attorney for Health and Well Being are also in order. This will also make sure that if you were involved in an accident or for example suffered a stroke, decisions relating to your health, and perhaps decisions around general care, medication and life support machines, would be made by your trusted Attorneys as opposed to Care or Hospital Officials, Doctors and Nurses.
Your initial 1 hour exploratory meeting is at our expense so there is nothing to lose by booking in for an informal chat.
We believe that proper financial planning changes lives.
Financial Planning helps us to identify what it is we are trying to achieve with our life, go onto achieve these goals and then maintain our desired lifestyle in the future, without the fear of ever running out of money or dying with too much.
Life isn't a rehearsal and precious time is slipping away, so you need to start doing the things that make you happy now. And stop doing the things that don't. Tomorrow might never arrive so start living the life you want now. Before it's too late. Financial planning is the bond that holds this together.
We need to plan our financial life and futures today, and protect everyone we care about along the way. There just isn't the time available to us to put it off - no matter how busy we think we are. Nobody else is going to do it for us.
Hope to see you at W&A soon.