Are any assumptions made for income tax?
In Quick View the required income entered and the forecasted returns are shown as net. The only exception is the lump sum option, where 25% of the full pension fund is taken tax free. The remainder of the fund is shown net of tax, assuming the current income tax bands in force and that they increase in line with RPI each year, and that the same marginal rates of tax as now are payable in the future.
It includes the allowance for the removal of the personal allowance on a two-for-one basis on earnings over £100,000. It is assumed that the remainder of the fund being paid is the only income received in that tax year.
For Full View, income tax is included in the calculations. The income shown as being received is net of tax in the forecast.
Prior to the client’s State Pension age, National Insurance is also factored in to the forecast.
After retirement, the tax code as shown on the report is used to calculate the net income from annuity, defined benefits pensions, State Pension, part-time earnings and any other income the client receives. It is also used to net down any lump sum in excess of the 25% tax-free cash allowance.
The current income tax bands are taken into account in the calculations. A standard tax code of 1060L is assumed, with a £10,600 tax-free personal allowance. The State Pension will be factored in to the nil-rate band before any other income.
The standard tax code of 1060L is also assumed when calculating the Chargeable gains Tax on immediate surrender of an Onshore or Offshore bond, where this is to be taken into account in the forecast.
It is important to note that the Annual Allowance and Lifetime Allowance are not factored into the calculations in either Quick View or Full View. Therefore should these allowances be exceeded, the restriction of tax relief is not considered in the forecast.