This means that nearly a third of UK pensioners retire with no substantial savings or personal pension income, according to the Office for National Statistics, which this month has published new figures, showing a snapshot of the year 2007-08.

Pension income for those pensioners is currently £132.60 per week for a single person or £202.40 for a couple, including pension credits at the full rate. The single person’s pension income here consists of the Basic State Pension of £97.65 plus pension credits of £34.95, while the couple’s pensions income includes Basic State Pension of £156.15 plus pension credits of £46.25.

Workers have been urged by pensions experts to take more control over their pension planning, considering the likely effects on pension income of market trends and budget cuts in the coming years. The current overhaul of pension rules has left even the Revenue Commissioners HMRC in some confusion, and some pensions providers have said that the Revenue is struggling to deal with the many changes contained in new pension rules. The ongoing pensions review also raises questions as to whether it is wise to rely on the Basic State Pension, for your pension income, if your retirement is still several decades away.

A recent report from Sun Life claimed that the UK is gradually shifting responsibility for your own pension income from the state and private sector to the individual.

As a state, the UK is now Europe’s leading ‘pensions miser’, with the lowest state pension income in Europe, compared to average working pay. The pension income from the Basic State Pension is now just 30.8% of average working pay, compared with an EU average of 60% and far behind the generous levels offered in Spain (81.2%), the Netherlands (81.9%), and Luxembourg (88.3%).

In the private sector, 90% of the generous defined benefit or final salary pension schemes are now closed to new members, again placing the onus on the individual to make provision for his own pension income.

The LibDems in particular are adamant that higher tax relief on contributions to the higher earner’s pension plan should be cut in the 22nd June budget. If the budget measures included totally abolishing the higher rate of 40% tax relief, the government stands to save at least £5.5bn in the next tax year. This is vastly more than the £3bn that HMRC is likely to collect from planned increases in Capital Gains Tax (CGT). Given that the new pensions minister is LibDem Steve Webb, only reinforces the likelihood of deep cuts affecting pension plans.

Whose pension plan will be affected?

The current threshold for the 40% tax rate is earnings above £37,400, which means that, taking the personal allowance into account, anyone earning over £43,000 is paying tax at the 40% rate, which they could reclaim in tax relief on contributions to their pension plans.

This means that contributions to pension plans, private pensions and SIPPs pensions should, where possible, be made before 22nd June, as that tax relief may be cut on or after that date.

Boost your pension plan to save personal allowance

Higher earners on salaries of over £100,000 have a second reason to make an urgent pre-budget contribution to their pension plans, private pensions or SIPPs pensions.

Currently, if your salary is over £100,000 you gradually lose your personal allowance of £6,475. This tapers away, so that you lose £1 of your personal allowance for every £2 you earn over the £100,000 mark. In effect, your whole personal allowance is gone once your wage approaches £113,000.

However, this can be avoided with a little clever pension planning. High earners can avoid losing their personal allowance by making contributions to their pension plans, private pensions or SIPPs pensions that lower their income to the £100,000 level.

Again – given the likelihood of a government assault on the 40% higher rate tax relief on contributions to pension plans, it would be prudent to act quickly, and make any contributions before 22nd June!

Elderly homeowners who move into care homes could face capital gains tax when later selling their home, unless government plans are amended.

Figures from care home research group Lang and Buisson reveal that there are 380,000 care home residents in the UK, of which an estimated 1 in 4, or 155,000, are home owners.

Many of these care home residents would be liable to pay house capital gains tax if they decide to sell their home, as many do to pay the continuing cost of care. They would be liable for capital gains tax on second property, once they have been living in the care home for 3 years, as their home is then deemed by HMRC no longer to be their primary residence. In effect, their home would have the same status as a second home or a buy-to-let property, at that time.

Capital gains tax on second property would apply in this case to homes that increase in value by more than £10,000 during the 3 years the owner is in the care home. Capital gains tax on second property does not apply to the full property value, but to the increase in the value of the property during the 3 years when the elderly person was in care.

Equally, the tax could apply to those who bought a second home on a buy-t0-let basis, as part of their pensions and retirement strategy.

The level of capital gains tax they stand to pay could  be much higher than the current level of 18%,  as the government has already stated it wishes to increase capital gains tax to bring it closer to 40%.

Many elderly people enter care homes with good prospects that they will return to their own home at a later date. They retain their homes for that reason, but in cases where a planned shorter stay in a care home becomes a stay of several years or more for health reasons, the decision to sell their family home to fund the ongoing cost of care can fall beyond the 3-year deadline for the taxman.

There is one ray of hope for older homeowners – government spokespersons have this week stated they have no intention that those moving into retirement will be the target of the new capital gains tax allowance measures.

Thanks to the pension changes, many will appreciate the freedom to base their pensions planning on retaining their own pension savings, rather than cashing them in to buy a pensions annuity. They can now leave their pension savings invested, and as they have not handed their pension pot over to an annuity provider, they can leave what remains of their pensions savings to their children, in their will.

However, under existing legislation, this course of action could expose their pension savings to a combination of tax charges that could eat up to 82% of their funds, when they die. Over half of this consists of tax and other surcharges that would be levied on their savings as an ‘alternatively secured pension’. This is the term that refers to a pension held without an annuity purchase for those over 75, and for most is a continuation of their previous unsecured pension.

In many cases the alternatively secured pension will be an income drawdown contract, where pension savings are left invested in the stock market, and can be drawn down in different amounts each month, as required.

However, the remainder of the tax which could be due on pension savings left to the children as part of the saver’s pensions planning would be Inheritance Tax (IHT), which is levied by HMRC at 40% on any funds which exceed the individual’s ‘nil rate band’ allowance of £325,000 (or $650,000 for a couple).

While the nil rate band may sound relatively generous it includes all wealth contained in the individual’s estate, and many find their allowances quickly disappearing when they tot up the value of their property, life and other insurances, savings and investments, and the pension itself.

By taking pensions advice, portions of this tax liability and in particular the exposure to Inheritance Tax can be reduced, or eliminated altogether. Pensions savers can put in place an effective programme of pensions planning by working with a qualified independent financial adviser, in response to these and other Government pension changes that may emerge, over the coming weeks.

Dig a little deeper, and we see that the pension changes are primarily designed to save the state money – which of course is the Government’s job, and must be applauded. However, looking at the pension changes with a cynical point of view does give a unique perspective on government pensions thinking in general.

Basic State Pension and pensions credits: The Government will say that the launch of the National Employment Savings Trust (NEST) in 2012 will provide everyone with an additional pension income, a private pension in addition to the Basic State Pension which currently pays out just £97.65 taxable per week. A cynic might point out that it will also save the Government paying out means-tested pension credits as a top-up to the Basic State Pension, since now we will all have a personal pension pot of our own from our NEST pension savings. In other words, the Government has had us save our own pension credits, and will soon need to pay far less pension credits from the coffers of state.

State retirement age and NI contributions: Government will say that raising the state retirement age to 66 gives employees more flexibility to work longer, which suits a generation whose improved health and longevity has dubbed them ’the wellderly’.  A cynic might say that Government has also cleverly had us pay into the Basic State Pension for longer, with an additional year of National Insurance contributions, and also to draw the Basic State Pension for a year less, as we will retire a year later.

The 75 rule versus tax liabilities: Government will say that by abolishing compulsory purchase of a pensions annuity by age 75, we now have greater flexibility to keep our pensions savings, and to bequeath them to our children. However, a cynic might point out that after the government pension changes, the taxman at HMRC may be rubbing his hands with glee at the prospect of Inheritance Tax and other tax liabilities - these could eat up four-fifths of our pension savings, if we leave them in our will without taking pension advice and discussing retirement planning.

The average UK retired household pays out 30% of pension income to the taxman, according to new data published by insurer MetLife Europe.

UK pensioners lose this large slice of their pension income through a combination of direct and indirect taxes, which nets a total of £34 billion for the Revenue.

From an average household pension income of £17,727 this means that the taxman directly or indirectly receives £5,315, including income tax on pensions income of nearly £1,500 and VAT of £1,229.

The third largest tax burden on pension income in the UK’s 6 million retired households is council tax, which eats up 5% of gross pensions income.

These direct taxes including income tax and council tax comprise 13.4% of the total 30% tax burden on pension income, with 16.6% coming from indirect taxes such as VAT, duty on tobacco, alcohol and petrol, car tax and tv licences.

Proportionally the less well-off are hit harder, with tax taking a full 40% of gross pension income from the bottom 20% of pensioner households by income.

MetLife added that workers need to take pension advice and give more attention to pension planning in consideration of the growing tax burden, which does not end at the end of our working life.

Only by working with a qualified pension planner can future pensioners take the necessary steps to maximise both the amount and the flexibility of their pension income.

Pensions planning should look not only at state benefits but also at occupational and personal pensions. MetLife’s analysis indicated that the average retired household takes 36% of its gross pensions income from occupational pensions, 50.5% of pension income from benefits, and the remainder from investments and savings.

The average occupational pension pays £6,381 before taxes, according to MetLife.

New research by Axa reveals that those who take just an hour a month to review their tax planning and other payments, tend to be better off than those who do not. Despite this, many neglect the area of financial planning, to their cost. Following this week’s budget this could be even more crucial.

As a current example, Axa’s research has revealed that, while nearly a third of adults expect significant tax hikes after this year’s election, more than half are doing nothing to prepare for them.

Consequently, UK adults divide into two groups: those who streamline their outgoings by ‘getting proactive’ about their financial planning – and those who continue to make higher-than-necessary payments in personal tax and other outgoings.

Inertia hampers financial planning

It is inertia, lack of knowledge, and what Axa in the past has called a ‘Peter Pan’ attitude to financial advice, that are holding people back from sorting out their financial lives.

Consumers need to be more proactive about their finances, see that they stand to benefit from financial advice, and then take action to get it, Axa said.

Tax is not the only area where savings can be made. With quality financial advice, households can also slash the cost of their mortgage, credit cards, and loans, Axa said.

“Calculate what you could save by paying off any debts early – this is a huge motivator,” said an Axa spokesperson.

Savings from financial planning

Financial planning can cut costs in various areas of monthly expenditure. Here are some quite separate savings facts to show where streamlining can be achieved.

Independent financial advice saves a mortgage borrower, on average, £982 per year on their mortgage repayments**.

On average, lack of knowledge of tax incentives, reliefs and credits results in annual unclaimed tax benefits equivalent to £186 for every UK taxpayer*.

Older workers are often unaware of their higher tax entitlements, and may fail to check that they are getting their higher allowances from the taxman. Those over 65 are entitled to earn £9,490 tax-free, and over-75s £9,640, compared with the standard allowance of £6,475.

*Source: Unbiased.co.uk
**Source: Assocation of Mortgage Intermediaries AMI

Inheritance Tax or IHT is a 40% tax that can be applied to portions of your wealth, when you move to transfer it to your children as an inheritance.

HMRC’s total gains from IHT are expected to total around £2.3bn this tax year (2009/10).

Much of this tax could have been avoided, as IHT is known as the most avoidable tax of all.

Checking your current liability for IHT is a simple calculation based on the total assets in your ‘estate’, less your debts and liabilities.

You can check your IHT liability right now, using our new Inheritance Tax calculator.

The tax allowances for IHT are currently £325,000 for a single and £650,000 for a couple.

This may sound generous, but bear in mind that they apply to your total wealth, as contained in your ‘estate’.

Your estate consists of the value of your home/other properties, cars, valuables, savings, investments, and insurances, minus the value of your outstanding mortgage, loans and other debts.

However, good independent financial advice and a little IHT planning can reduce or eliminate altogether your IHT liability, in just a few steps.

For instance, an insurance policy giving £250,000 of cover could be written ‘in trust’, reducing the value of your estate by that amount, right away. That single step could well be enough to bring your estate’s total worth back within your IHT allowances, so that you avoid tax.

Our advisers are experts in using IHT exemptions and Potentially Exempt Transfers (PETs) to further cut your possible exposure to IHT.

You can check your IHT liability with our IHT calculator, or find out more with an online advice enquiry, or call us now on 0800 678 5929.

Her Majesty’s Revenue Commissioners is seeking to obtain a computer disk stolen from a Swiss bank with the names of 1,500 account holders who may be using Switzerland as a tax haven.

The disk was first offered to the German government by an informant in Switzerland, and the Germans have already received approval from lawyers to purchase the data, in the interests of personal tax investigations.

HMRC would be entitled to bid for the disk, as it may, under UK law, pay for information that may lead to the investigation, identification and prosecution of tax evaders. HMRC hopes to sift the data on the disk to zone in on British holders of Swiss bank accounts.

The disk has also attracted the interest of the Dutch, Belgian and Austrian tax authorities, who wish to monitor the possible avoidance of personal taxes by their own nationals.

Switzerland’s reputation as a tax haven is reinforced by the measures it takes to reassure its banking clientele that their money is safe, from real as well as online invaders. Barbed wire trellises seal all Swiss borders, and multiple rows of manhole shafts criss-cross all border roads, designed to be filled with explosives at the first hint of invasion.

This latest security breach is certain to unsettle those avoiding personal tax by using Swiss banks. It will also remind Swiss bankers of the dangers of capital flight,  as summed up by their own centuries-old mantra: ‘Money is as timid as a deer’ (‘Das Geld ist ein scheues Reh’).

In such situations, problems arise when a taxpayer acts (or refrains from acting) based on undocumented telephone advice, or on their recollection of what HMRC said, according to the Low Incomes Tax Reform Group (LITRG).

It is therefore important to complement direct advice from the Revenue with independent financial advice from a competent financial or taxation expert, said the LITRG.

 “This can become an acute problem for the caller who does not have a professional representative with whom to double-check  information and advice they receive from HMRC,” said the LITRG.

This has been proven in recent cases where taxpayers have made a legal challenge to decisions made by HMRC. The clear message from the courts is that taxpayers must have put their question to HMRC in writing, with a clear indication that they are seeking a considered opinion on which they may rely.

As a minimum, taxpayers communicating directly with HMRC should record the date and time of their call, the name of the officer they spoke to, and the details of what was said, particularly from the HMRC side. If the call is made from a landline, taxpayers should also retain their itemised phone bill to prove that the call took place.

In the event of disputes, taxpayers can make a ‘Subject Access Request’, known as an SAR, from the HMRC Data Protection Unit, to receive a CD copy of telephone conversations made between certain dates.