Henson Crisp taking care of your future, offering specilaist retirement advice in Peterborough and London

Interest rate cut is a blow to pensions

4th August 2016: The Bank of England cut Bank Rate to 0.25% and introduces a package of measures designed to provide additional monetary stimulus

Interest rate cuts and my pension.

While homeowners with variable rate mortgages have been rejoicing at the recent cut to the Bank of England base rates, those coming up to retirement have been faced with a less favored outcome.

Pension savers could be big losers from the Bank of England rate cut, critics forecast that pension payouts will fall to record lows, with many of the top providers cutting their annuity payouts.

Soon after the Bank's decision to cut the base rate to 0.25%, yields on government bonds, otherwise known as gilts, dropped to an all time low.

Pension schemes are being hit by lowered interest rates, the impact will not be felt equally by everyone.

Please contact us if you'd like some advice on your pension.

Workplace pension saving remains one of the most tax efficient ways for most people to save and with returns from cash savings at an all-time low, using a pension fund to invest in other assets that have a greater opportunity to grow over the long term is still well worth considering.

Lower risk pension schemes

There are pension schemes with robust funding plans that have less risk, these will fare better. It is more important than ever for employers and employees alike to get good advice on pensions schemes.

The lower rate cut also puts annuity returns in jeopardy. An annuity provides a lifetime income and annuity rates have also fallen to low levels.

Though the impact on annuities has been partly offset by the rise in the stock market. The FTSE 100 surged by nearly 1.5% soon after the rate cut, and was around 12% ahead of its post-Brexit lows.

How much can you pay into your pension?

  • You can contribute as much as you earn in a year, up to £40,000 annually
  • You can also use HMRC’s “carry forward rules” to use the past three year's pension contribution limits - if you haven't already
  • Once you start drawing from your pension your annual limit is reduced to £10,000
  • The lifetime pension limit reduced from £1.25m in 2016

Are you a high earner?

The generous tax reliefs that have been given to pension arrangements mean that pensions have long played an important role in tax planning for high earners.

However, in recent years, increasing restrictions have been placed on these reliefs, just as the rising burden of income tax has made them all the more valuable.

The amounts you can pay in and take out without being penalised with heavy tax charges have been reduced but pensions still continue to offer significant tax benefits.

Workers earning over £150,000 will have their annual pension allowance gradually reduced to £10,000 until they earn £210,000, at which point they no longer qualify for tax relief on contributions.

If you want to reduce the amount of tax you pay, come and talk to us. Planning ahead may help you to lessen your tax burden.

Government plans to save companies crippled by pension costs

Government plans to save pension scheme.

Companies that still offer final salary pension schemes will find the cost of maintaining them soar as a result of lower interest rates and will have to find the money to fill the gap in their pension schemes.

Pensioners could lose nearly a third of their retirement pot under Government plans to save companies being crippled by growing pension costs

Cuts to final salary-type pensions could become possible under measures being considered by MPs in the influential Work and Pensions Committee to make them more affordable for companies.

This might mean that “Cash-strapped” employers could reduce workers' final salary pensions without first going through courts, which is currently not allowed.

Pressure is rising on the Government to make final salary pensions more sustainable, many retirees could be affected by the possible overhaul,

Currently when companies go bust their pension schemes are rescued by a Government funded lifeboat scheme called the “Pension Protection fund”. In such cases employees lose as much as 22pc of their pension, depending on how much they earn.

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Henson Crisp Limited

Telephone: 01733 355120 / 02036 377140
Email: enquiries@hensoncrisp.com

Registered Office:
Ground Floor Bank House, The Lawns, 33 Thorpe Road, Peterborough, PE3 6AB.
Registered in England, No. 06266686

Offices in both Peterborough and London.
Financial Advice for individuals and companies.

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