A number of clients have been in touch over the past few days regarding certain news articles that have worried them. The major area for concern seems to be around the subject of the pension tax-free allowance.

Of course, it’s clear that NOBODY knows what the government will deliver on the 30th October and that it’s expected that there will be some changes to come. The news articles are designed to create alarm (and by proxy, increase their audience).

It’s the strong view here at Willow that it is extremely unlikely that your tax-free cash allowance would be reduced retrospectively. Based upon previous major changes, if the Chancellor were to reduce maximum tax free cash to, say £100,000, and you already have a greater entitlement, the more likely outcome is your higher tax free cash would be protected as part of any new rules. Those building their pension funds for the future would then be subject any new limit.

Furthermore, and arguably more importantly, to take your tax-free allowance from pension now and place it into your bank account could have a negative impact on your future planning.

  1. This places your tax-free cash firmly INSIDE your estate which means it could be subject to inheritance tax.
  2. Future growth and income would be taxable without appropriate planning
  3. Taking a large sum out of a long-term investment increases the market risk (selling when your funds are a lower value) and could impact your longer-term planning.
  4. All future income from your remaining pension would be subject to income tax with no ability to manage income and tax allowances.

As ever, our job is to advise and not to persuade. We will always offer advice that relates to your individual circumstances, based upon the legislative framework that applies to you. At times such as this, when tensions are high, we urge everyone to remain calm, objective and to consider their options carefully. Rolling the dice and guessing what may or may not happen, is rarely the best approach.

Assuring you of our best intentions at all times.