Many political pundits believe that the next budget will include a tax raid on pensions. Danny Alexander, has commented that he wants the higher-rate tax relief to be scrapped, saving the government £7billion.
This means that private pension savers would get relief at the basic rate of 20 per cent. Taxpayers in the higher rate (40 per cent) would lose £20 for every £100 invested into a pension, In reality this equals £300 on pension savings of £1,500 per year.
Tax When You Withdraw
Investors planning to take lump sums from their pension pots at retirement may be forced to pay tax on the amount they withdraw, above a certain threshold, if the budget raid on pensions goes ahead. Many pension providers and financial commentators are advising that higher-rate taxpayers should top up private pensions now.
Current rules mean that savers can only withdraw 25% of your pension at retirement as a lump sum. The rest has to be taken in increments over the remainder of the investors lifespan.
Stopping The Government Tax Raid On Pensions
There a way out if the government tax raid on pensions, though, which is not widely known. A pension pot of over £60k can be protected via a specialised pension trust. These trusts fully protect your pension savings from the taxman. They are set up around a legal framework and are disclosed yearly to HMRC. Furthermore, the trusts allow the investor to take up to 85% of their pension pot as a lump sum, when they want to take it, regardless of age, not when the government say they can.
Now, what if that same pension pot was then placed in a high yielding compounded investment earning 4% per month ? Then the saver would have a powerful tool for speedy wealth growth. £50,000 invested at 4% compounded will return £101,000 in just 18 months. And it can be arranged so that it remains in a tax free environment. Don’t wait for the government budget planners to raid pension pots, take action to improve it before you lose it to excessive tax.