-- Annual Pension Allowance and Lifetime allowance Cut --


Protect your money from the recent Budget tax cuts
Protect your money from the recent Budget tax cuts

DWP tackles state pensions for civil partners
DWP tackles state pensions for civil partners

Maximising Pension Contributions with PIPs
Maximising Pension Contributions with PIPs

One year annuity deferral could take 24 years to recover
One year annuity deferral could take 24 years to recover

 

The Treasury has announced the annual pensions allowance will be lowered to £50,000 and the lifetime allowance will drop to £1.5 million, in a move that will save £4 billion a year.

The annual limit has been slashed from its current level of £255,000 to £50,000 while the lifetime pension limit has dropped from the current £1.8 million level.

The Treasury estimated that the cut would hit 100,000 consumers of which 80% earned more than £80,000 per annum. The Treasury noted it was able to offer a higher annual allowance than the £30,000 or £45,000 proposed in consultation by also cutting the lifetime allowance.

‘We have abandoned the previous government’s complex proposals and developed a solution that will help to tackle the deficit but not hit those on low and moderate incomes. We have taken a tough but fair decision,’ said Mark Hoban MP financial secretary to the Treasury.

The Treasury will also allow pension savers who exceed the annual allowance due to one-off spikes in contributions to offset this against unused allowance from previous years.

The reduced annual allowance will kick in from April 2011 while the new lifetime allowance will take affect in April 2012. The Treasury also plans to consult in November on options to enable people to meet the tax charge out of their pensions.

The Association of British Insurers welcomed the move to set the annual allowance at £50,000. ‘This is a much more practical way to incentivise pension saving through a simple, easy to understand system compared to the overly complicated proposals of the previous government to gradually lose all tax relief after £150,000 of income,’ said Maggie Craig, director general of the ABI.

The ABI would have preferred for the lifetime allowance not to be reduced but welcomed the ability to roll over unused allowance over three years, she added.

Source: Citywire

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