Watch out for lifetime allowance traps

PensioBartlett WM_17n savers could face tax bills for thousands of pounds by joining employee benefit schemes.

David Bates, head of wealth management at Bartlett Group, has warned that anyone who joins a group death in service scheme or workplace ‘auto-enrolment’ pension could forfeit their application for fixed protection of their lifetime allowance.

The lifetime allowance is the total amount of money you can hold within your pension fund(s) for retirement without incurring additional tax penalties.

The government reduced the allowance from £1.25 million to £1 million from 6 April this year but savers can apply for ‘fixed protection’, which allows them to keep the higher amount.

Fixed protection is lost if any additional money is paid in.

David said: “I would urge savers to check their employee benefits very carefully as they could unknowingly make a contribution that results in the loss of protection and a substantial tax bill.

“Many people don’t realise that joining a group death in service scheme counts as a pension contribution. This is a quirk that could catch a lot of people out, especially higher earners who change jobs.”

Death in service schemes provide a tax-free lump sum to a beneficiary in the event that an individual dies while employed. Payments can typically be up to four times the individual’s salary.

David added: “When a chief executive or indeed any high earner moves from one company to another, they may automatically be enrolled into the pension scheme, potentially putting their lifetime allowance protection in jeopardy. Unless they opt out within 30 days they will be deemed to have made a pension contribution.

“In addition, every three years, employers have a duty to automatically enrol those who have opted out. Individuals need to be aware of when this will happen and opt out within one month to avoid losing their protection.”


Bartlett Wealth Management reaches £100m milestone

Bartlett Wealth Management has reached £100m of assets under management across our managed portfolio services Performance Matters and Straightforward Wealth.

Around £18m of new money was invested in the portfolios in the financial year to September 2015, compared to around £15m the previous year.

The funds selected for the portfolios are chosen by the Bartlett Investment Committee, founded in 2008, which meets monthly to analyse economic events and market statistics.

David Bates, Bartlett Wealth Management

David Bates, our Head of Wealth Management, said: “In this challenging economic environment, we believe that clients value, more than ever, a straightforward and easy to understand yet effective advice service. We are forecasting further growth and will be recruiting the right individuals to help maintain this momentum.”

We have also experienced growth within our corporate pensions division, relating to the government’s Workplace Pension reforms.

Bartlett Wealth Management is part of Bartlett Group, which also offers insurance broking and risk management services to companies and individuals.

Budget 2016 – what it means for pensions

David Bates, Head of Wealth Management at Bartlett Group, analyses how the Budget will affect pensions:

There was good news for pension savers in this week’s Budget as the Chancellor resisted the temptation to make major reforms.

The media was full of rumours about changes to pension legislation in the run-up to Wednesday’s speech but, with a few notable exceptions, the industry was left relatively untouched.

Pensions remain a highly attractive and tax-efficient way of saving money for your retirement.

The announcement of a Lifetime ISA to help younger people save for retirement or to buy their first home is good news.

From April 2017, any adult under 40 will be able to open a Lifetime ISA. Up to £4,000 can be saved each year and savers will receive a 25% bonus from the government on their money. To a certain extent, this new savings product will be slightly more tax efficient than a highly tax efficient pension plan, albeit only for younger savers. Those that are saving for a house deposit stand to benefit the most.

We also note from the Budget that the total amount that an individual can save each year into all ISAs will be increased from £15,240 to £20,000 from April next year.

Any measures that encourage people to save for major life events are to be welcomed. We’ll monitor the take-up of Lifetime ISAs with interest.

The government has also announced that Capital Gains Tax (CGT) rates will be cut from 6 April 2016, although residential property will continue to be taxed at current rates.

From April this year, the higher rate of CGT will be cut from 28% to 20% with the basic rate falling from 18% to 10%. This is positive news because it is a further encouragement to save.

Have you got the right home insurance policy?

The Association of British Insurers (ABI) has, for the first time, published figures showing the rate of pay-outs for common insurance claims.

Its analysis of claims made during 2013 and 2014 makes very interesting reading, especially when it comes to home insurance.

It found that more than one in five home insurance claims is unsuccessful.

Why? Partly because of the complexity of policies, says the ABI, as well as confusion among home-owners about what is covered.

Some of the rejected claims involved cases where the wrong type of cover had been purchased. In others, home-owners had made claims that were valued below the policy excess.

Another reason for claims being unsuccessful was the failure of policyholders to maintain their property.

The ABI’s analysis shows just how important it is to ensure you have the right cover for the things that matter most in your life. In the unfortunate event of a claim, you need the reassurance and peace of mind that your policy will deliver.

Home owners should seek advice when buying insurance and take time to check exactly what is covered. For example, it’s easy to think you’re automatically covered for accidental damage but very often this is an added extra.

Given the ABI’s findings, it’s worth checking that you have the right policy in place, especially if your home insurance is due for renewal soon. Bartlett offers a competitive and personal service for finding the most appropriate home and contents insurance for your needs.

If you would like to speak to an expert about your insurance needs, please contact Alexa Owen at

Last chance to maximise your pension contributions

You may be aware that the government is conducting a comprehensive review of pension taxation. While no-one can be sure, it is anticipated that the Treasury will produce its final response in next month’s Budget. The outcome is expected to be cuts to the tax breaks currently enjoyed by higher earners.

In the short-term, this means that higher earners should look to make the most of the current rules while they still can by increasing their contributions this tax year. We would encourage you to act sooner rather than later.

We already know that new rules will come into force in April 2016 regarding the amount that higher earners can contribute to their pensions and claim tax relief.

The headline change is that the annual allowance for pension contributions is being gradually reduced from £40,000 to just £10,000 for higher earners whose income exceeds £210,000.

The changes take effect from 6 April 2016 so now is an opportune time to maximise your pension contributions and the tax relief that can be achieved on them.

On incomes of more than £150,000 this year, up to 45% tax relief is available on pension contributions.

There is also the opportunity to put an extra £40,000 into your pension before 6 April. The £40,000 allowance usually applies across a whole tax year but there is a second chance to invest a further £40,000 before April 2016.

Unused allowances from the last three tax years can be carried forward and paid in to your pension pot.

Many people leave it to later in the tax year to make their pension contributions but we would encourage you to take advice now about maximising your pension before the end of March.


When it comes to pensions, performance matters

A question we’re often asked is ‘how do you decide which funds to invest in’?

Bartlett Wealth Management places performance at the heart of everything we do. That’s why our centralised investment proposition for investors and pension holders is called ‘Performance Matters’.

We have more than £90m of assets under management in Performance Matters, which consistently delivers excellent returns, tracking above industry benchmarks.

We invest our clients’ money in a transparent way, based on their attitude to risk and our strict investment criteria. We choose high calibre and stable funds, selecting them using a formula based on statistics and proven track records, never ‘gut feeling’.

Performance Matters is overseen by the Bartlett Investment Committee, founded in 2008, which meets regularly to discuss current economic events and scrutinise the latest market statistics.

Our team of experts analyses thousands of investment funds to ensure that we only use the best performing funds within each sector. Underperforming funds are removed.

We place great emphasis on the ‘risk-adjusted’ return of an investment, ensuring that no unnecessary risk is taken by the fund manager. By constantly monitoring funds and replacing underperformers, the Bartlett Investment Committee ensures that our clients’ investments generate the best returns.

Changes to the lifetime allowance: Q&A

What is the lifetime allowance?

The lifetime allowance is the total amount of money you can hold within your pension fund(s) for your retirement without incurring additional tax penalties.

What is changing?

The lifetime allowance will be reduced next year, as part of major pension reforms by the government. The allowance currently stands at £1.25 million but this will be reduced to £1 million from 6 April 2016.

The allowance applies to the value of your pension when you eventually decide to draw down the money – not its present day value.

Although the lifetime allowance has traditionally affected only the wealthiest investors, the reduction to £1 million means that many more savers could reach the threshold if their investments perform well during their working life.

What are the penalties?

The amount payable will depend on how your pension money is paid to you. You will be taxed at:

  • 55% on lump sum withdrawals from the excess amount in your pension.
  • 25% if you retain the excess amount in your fund

What should I do?

Check how much of the lifetime allowance you have already used (if you have more than one pension scheme, you will need to add them up). You can do this by checking your latest statement(s) – ask your pension provider if you’re not sure.

That figure could be well below the lifetime allowance now but consider whether your contributions and projected annual growth are likely to take you beyond the threshold.

Those on a final salary schemes should multiply the annual retirement pension by 20, then add any additional tax-free lump sum on top. So a final salary scheme that pays £30,000 a year is worth £600,000.

I’m going to exceed the allowance – what action can I take to protect my investment?

If your pension is already worth more than £1m, or is close to that figure, you can apply for lifetime allowance protection.

“Fixed protection” allows you to maintain the higher £1.25 million allowance but the downside is that you won’t be able to put any more money into your pension fund. If you do, the protection will be lost.

“Individual protection” enables you to retain a lifetime allowance based on the value of your pension on 5 April 2016 – limited to £1.25m. Further contributions are allowed.

This can be a complicated area so, again, take advice of you’re not sure on the best way to proceed.