Pension changes boost offshore investments

Changes to pension rules mean that increasing numbers of people are looking to shelter their money from the taxman in offshore investments, rather than pension funds.

On April 6th the most sweeping changes to UK pensions for 50 years came into force, aimed at making life easier for investors and making the pensions industry more transparent (full story).

However, tax limits were also introduced on people saving more than the government's limits.

This means that independent financial advisers (IFAs) and their customers have increasingly been looking to opportunities in the offshore market to shelter money, data from Scottish Equitable International shows.

In the wake of the changes, higher-rate taxpayers are taxed on annual pension contributions higher than their salary or £215,000 at 40 per cent.

Additionally, a tax of 55 per cent is levied on pension funds worth more than the current lifetime allowance of £1.5 million. This allowance is set to rise to £1.8 million by 2010.

"It is also suggested that 50 per cent of FTSE 100 directors and 25 per cent of FTSE 250 directors will be affected by the annual and lifetime allowances," said David Healy, managing director for Scottish Equitable International.

And this means that people putting money away for their futures are looking for other ways to keep their cash from the taxman.

"Investors affected by the lifetime allowances may or may not be aware that they can avoid these potential tax liabilities while continuing to save for their retirement by choosing a non-pension alternative," Mr Healy explained.

"As well as offshore bonds growing virtually tax-free, the flexibility of an estimated 20,000 investments is far greater than that found in a fund supermarket which in comparison has typically around 1,000 – 1,500 investment types." XXX