Summer Budget 2015 & Pensions
Following the introduction of new pension freedoms in April, we were hoping for a slightly more subdued Budget when it came to pension reform.
However, politicians do love to tinker with pensions.
Here are the main measures introduced in this Budget and what they mean if you are using pensions to save for your retirement.
The Budget confirmed that previous plans for a secondary market for annuities have been postponed, until April 2017 allowing the government to consult with industry and ensure adequate consumer protection measures are in place.
As we already knew, the lifetime allowance for pensions will be reduced from £1.25m to £1m from April 2016.
Individuals with pension assets (or defined benefits) valued over £1m will be able to put in place transitional protection, which means this reduction to the lifetime allowance will not be retrospective.
From April 2018 onwards, the lifetime allowance will increase in line with price inflation, as measured by the Consumer Prices Index (CPI).
As Shelley mentioned in her blog here about inheritance tax changes, the annual allowance will be restricted for higher earners, in order to fund the IHT changes.
Those earning more than £150,000 a year will see their annual allowance tapered down from £40,000 a year to £10,000 a year by the time earnings reach £210,000.
Also considering money going into pensions, the Budget reformed the Pension Input Period regime.
This is used to calculate pension contributions against the Annual Allowance, and by April 2016 they will be aligned with tax year end dates, in order to simplify pension planning.
Aligning pension input periods with tax year ends is generally good news for personal pensions, but could be more problematic for occupational pensions with tend to have pension input periods aligned with company year ends.
Perhaps the biggest Budget announcement regarding pensions was the publication of a Green Paper on additional pension reforms.
This could result in pensions becoming more like Individual Savings Accounts (ISAs), with no tax relief on contributions, tax-free investment growth and no income tax to pay on withdrawals.
Only time will tell whether the government is prepared to enact such a radical reform to the pension tax system and what this will mean for retirement planning.
If you have any questions about the pension announcements in the Summer Budget 2015 and what they mean for your retirement planning, please do get in touch.