Pensions - Articles - Paying pension tax charges is not always a bad thing

The common perception is that people should do all they can to avoid paying these charges. This can lead to some people choosing to leave their pension scheme to prevent further benefit accrual. However, according to the mutual insurer there are instances where paying the charge is in the clients’ best long term interests.

 The firm has produced a paper, Why paying a tax charge isn’t always a bad thing, highlighting how advisers can set about giving sound advice to clients in this situation and sets out suggested procedures for working out whether a client is better off financially by being in or out of their scheme.
 Both the annual and lifetime allowances have been reduced considerably in recent years which mean the number of people potentially affected has grown. While it is often seen as something only affecting high net worth investors, people with long term service in defined benefit schemes, such as teachers and doctors, are also often affected.
 Clare Moffat, head of business development at Royal London Intermediary, said: “It is important that people realise there is nothing inherently wrong in paying one of these charges. They aren’t a punishment for bad behaviour; they are simply the mechanisms HMRC uses to claw back any tax relief the member has enjoyed which exceeds annual or lifetime limits. Those affected need to be made aware of the potential impact leaving a scheme might have on their long term retirement planning. They could miss out on employer contributions or find they lose valuable death benefits. This guide highlights the key issues advisers need to consider and suggests processes they can follow to determine whether a client is better off financially by being in or out of their scheme.”

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