The Financial Secretary to the Treasury, Mark Hoban MP, announced that the annual allowance pension savings will be reduced from £255,000 to £50,000, and the lifetime allowance will be reduced from £1.8 million to £1.5 million, replacing the complex proposal legislated for by the last Government in the Finance Act 2010.
The reduced annual allowance will apply from April 2011 and the Government plan to introduce the reduction in the lifetime allowance from April 2012. There will be a provision to carry forward unused annual allowances for up to 3 years.
What is the annual allowance?
The annual allowance is the maximum amount of pension saving a person can have each year that benefits from tax relief. This includes pension savings made by individuals plus any made by other parties, for example, an employer. There is no limit on the amount that can be saved in a pension scheme, but there is a limit on the amount that can get tax relief each year. If an individual is saving more than the annual allowance they will pay a tax charge on the amount over the annual allowance, called the annual allowance charge.
This represents a significant simplification compared the previous Government’s proposals and provides a good platform for pension savers to plan ahead. There are further significant proposals relating to pensions reform, which are due to be released in the coming weeks, and we hope that a similar approach is adopted ensuring that the changes are made more simple to implement.
Richard Stewart
14th October 2010
