Happy New (Tax) Year!
The start of a new tax year often means changes to Government financial policies, allowances and benefit rates. As such, it presents a strong opportunity for individuals to review and update their financial strategy.
That said, the 2021/22 tax year may seem slightly more complex than other years. The pressures of the coronavirus pandemic have placed immense pressures on public finances. Consequently, the Government has been forced to adapt its various benefits and policies accordingly.
Many adults may feel confused about such developments. The Budget 2021, as well as the Government’s somewhat anticlimactic Tax Day, didn’t offer the clarity many individuals had hoped for.
So, My Pension Expert has outlined the main changes that retirement planners should monitor throughout this coming financial year.
Personal Allowance changes
For the 2021/22 tax year, the personal allowance – the amount a person can earn before paying income tax – will rise from £12,000 to £12,570. This means that Britons earning this amount or more must now pay income tax.
The threshold for higher earners has also been raised. So, people who earn £50,271 or more must now pay 40% income tax.
However, it’s important to note that these thresholds will be frozen for the next five years. Consequently, people who are due a pay rise between now and April 2026 may find themselves pushed into a higher bracket – meaning that they’ll need to pay more tax. Government figures suggest that 1.3 million Britons may find themselves in this position over the coming years.
State support for retirees
As of 12 April, pension credit weekly top-ups will be increased from £173.75 to £177.10. Carers may be entitled to even more.
This modest increase will make sure that low-income retirees can keep up with their household bills, in spite of the challenging economic climate.
Similarly, the state pension will also be raised by 2.5%. So, people over the age of 66 will receive £179.60 each week from the state; that’s an additional £17.60 per month.
Lifetime Allowance changes
Perhaps the biggest change for retirement planners is the proposed changes to the lifetime allowance (LTA).
This tax year, the allowance will rise by 0.5% to £1,073,100. However, similar to the personal allowance, it will be frozen at this level until April 2026.
This freeze could mean that higher earners, as well as consistent savers, could find themselves being pulled over the savings threshold and subject to charges.
What’s more, medium to high earners within the public sector who may be reliant on a defined benefit pension could also be hit with additional charges. This is because the annual pension amount for such schemes will be frozen at one 20th of the ‘cash’ limit, or £53,655 a year until April 2026.
How can I prepare my finances?
Ultimately, the various freezes and modest increases to pension policies throughout this coming tax year and beyond may seem confusing, which can be problematic for those wanting to adapt their retirement strategies accordingly. But it’s vital not to panic and rush into any major decisions.
Instead, savers should speak to a regulated independent financial adviser.
At My Pension Expert, our advisers are on hand to thoroughly review every client’s financial situation. We will recommend the best course of action to suit their individual needs, with invaluable insight to help savers adapt their strategies and save for retirement with confidence.
Changes to retirement finance policy may seem confusing, and even unnerving, at times. However, with careful consideration and expert advice, there’s no reason why Britons shouldn’t be able to adapt their retirement strategies and achieve a secure financial future.