Pension experts condemn the Government’s cut to the lifetime allowance, warning it undermines the freedom and choice agenda.
Watch Videos On The 2015 Pension Rule Changes And The Budget Headlines Including The Lifetime Allowance Cut
Lifetime Allowance Reduction To Net £600 Million
Chancellor George Osborne says £600 million will be saved a year as a result of cutting the lifetime allowance from £1.25 million to £1 million in April next year. A 55 per cent tax charge applies to excess pension savings above this value when you draw your benefits.
This marks the third reduction in the lifetime allowance since 2012 when the Government brought it down from £1.8 million to £1.5 million. The government then lowered it again in 2013 from £1.5 million to the current £1.25 million rate.
Lifetime Allowance Cut Back Disappoints Experts
The pension industry’s leading figures are disheartened by this negative lifetime allowance news, for it's counterproductive to all the excellent pension freedoms that have already been announced in the last year.
This is a retrograde step which will disincentivise saving for many thousands of people across the country. It would be better to restrict the annual limits that can be saved and scrap the lifetime allowance.
Stephen Lowe, Just Retirement’s Director
It penalises those who get good investment growth - a 40-year-old with £420,000 would breach the £1 million limit assuming 6 per cent annual growth and indexed at 2.5 per cent.
Andrew Tully, MGM Advantage’s Pensions Technical Director
The Lib Dems and Labour have previously called for the lifetime allowance to be brought down to £1 million, with Labour pledging to use the money raised to fund a reduction in university tuition fees. So it's unlikely to be altered, whatever happens in the forthcoming election.
The only positive related to this lifetime allowance reduction is the pledge that after years of being reduced, the lifetime allowance will be increased in line with CPI inflation from 2018.
Tax relief always seems to be in jeopardy every Budget, but the commitment to indexation is welcome - it’s the first time we’ve seen forward looking thinking since 2006.
Martin Tilley, Dentons’ Technical Services Director
The 2015 Pension Rules Explained
Budget 2015 Headlines
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