Lowes Magazine Issue 130

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Tracking down your pension pots Many people have accumulated pensions throughout their working career, and continue to do so, as they change jobs and employers. This has left a considerable £26.6bn estimated to be currently sitting in around three million small and lost pots, according to the Pension Policy Institute. Most pensions that have not been paid into since the individual left the company will be frozen. Some may be for small sums but when added together could be a valuable contribution to an overall retirement savings pot. Where an individual has had a workplace pension, in particular when the company has also contributed to their pension payments, through the cumulative power of saving, they can have built into not inconsiderable amounts. Tracking down any lost pension pots, therefore, is essential. Once located, what further actions can you take? Up to three small pots, those under £10,000, can be cashed in for a lump sum. There are three things to consider here: first, the full sum has to be taken out of the pension; second, that income tax will be payable on 75% of the sum; third, that as income received, it could push you into the next tax bracket. For pensions above the £10,000, these can be held until needed or they can be moved into one pension. Many people don’t know they can do this, or think it is complex to do so, or they might make a mistake which will adversely affect their retirement income. There are plenty of reasons why combining pensions with a single provider can be a good idea. Most obviously, a single retirement pot is much easier to track and manage than having various pensions with different providers Also, older pensions can often have higher charges, so consolidating can bring down costs and charges. It is also possible to increase income flexibility and more investment choice by moving older pensions into more manageable arrangements. However, this might not be right for everyone. It will depend on the type of pension pot and the individual circumstances of the pension holder. But it is good for people to know the choice is there. Lowes can help you track down lost pots and then help you make the right decision on whether to combine them.

Dividend tax allowance cut bites harder

A new dividend tax allowance amount of £500 is now in place, requiring more careful consideration of the tax implications of dividend-bearing investments. Changes to the annual dividend allowance in recent years have seen the amount investors and company directors could receive before tax fall from £5,000 a year from 2018/19 onwards to £1,000 in 2023/24 tax year. From 6 April this year, the allowance has been cut further, to £500 a year. This will mean many more people start paying dividend tax as well as having to declare the tax by completing a self-assessment form. A portfolio of £12,000 yielding 4.2% will exceed the £500 limit. The tax payable on dividends over the £500 is currently 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate payers. If investing into dividend yielding investments, maximising the current annual ISA limit of £20,000 could be the first step. Another consideration is increasing payments into a pension, as pension payments are subject to income tax only, on withdrawal in retirement. Combined with the reduction in the capital gains tax exemption from £6,000 to £3,000, also from 6 April 2024, with respective tax rates of 10%, 20% and 28% for the various tax bands, investors can expect to pay more tax on their investments. It pays more than ever to seek professional advice when investing, in particular where dividend payments are being used for income. Your Lowes adviser can talk though the new taxation landscape and how it will affect your individual circumstances.

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