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Pension Changes – Annual and Lifetime Allowances

Gresham Wealth

The Treasury has announced that the annual pensions allowance will be lowered to £50,000 from April 2011 from its current level of £255,000. The lifetime allowance is to also be reduced from £1.8 million to £1.5 million.

The Treasury estimated that the cut would hit 100,000 individuals of which 80% earn 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 during the consultation period by also cutting the lifetime allowance*.

The reduced annual allowance will take effect from April 2011 while the new lifetime allowance will be introduced in April 2012. The Treasury also plans to consult in November 2010 on options to enable people to meet the tax charge out of their pensions.

The Treasury will also allow pension savers who exceed the annual allowance to offset this against unused allowance from previous years, though the exact details of this process are yet to be confirmed.

The proposed changes will not affect the majority of pension savers, however for those it does impact upon it becomes more important than ever to take professional advice to ensure that contributions are made in the most tax efficient manner. The rule changes are the latest in a long line around pensions, however the new rules do appear much more simpler and straightforward than those introduced previously for higher earners. There remains a window of opportunity for certain individuals to make high pension contributions during the current tax year, ahead of the implementation of the new rules, which should not be overlooked.

*Source – Citywire

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