Autumn statement pensions issuesDecember 6th, 2012 by Dan Woodruff
Latest posts by Dan Woodruff (see all)
- The ultimate guide to why you should make a will - December 4, 2013
- Colchester Business Awards 2013 – Growing Business winner - December 3, 2013
- What is auto enrolment? - November 21, 2013
You will probably be aware that there was an Autumn statement yesterday. This article deals with the Autumn statement pensions issues. This will be relevant to you if you are a high earner paying in near to the maximum contributions, or are currently receiving drawdown income.
A quick summary of the Autumn statement pensions issues
Drawdown income increased
Recently, drawdown incomes have been hit badly by the fact that reviews have reduced both the income rates and the maximum levels of income allowable. The Government had previously reduced the maximum limit for drawdown income to 100% of the GAD rates. This was a reduction from the previous level of 120% of the GAD rate. Yesterday’s Autumn statement announced a return to the previous rate of 120%. This will help drawdown income recover somewhat. There are also hints that the downward pressure on GAD rates will be looked at, and more details will follow in the next few months. Changes are likely to take place by April 2013.
In practice, if you currently receive drawdown pension income you may suffer a review of this income before these changes take place. You should probably talk to your financial adviser about this so that you can prepare for the likely changes to your income. It may be possible that you can bring forward a review once a change takes place in your favour.
Pensions tax breaks hit
The maximum annual allowance for pensions tax relief will be reduced to £40,000 from the current limit of £50,000. This means that those high earners who currently pay in pensions contributions near to the limit will need to make some changes to their pensions savings. This change will take place from April 2014. If you are using carry forward to pay in extra pensions contributions care will be needed as the level for this will reduce from £50,000 to £40,000.
The maximum allowed in pension schemes (lifetime allowance) has been reduced from £1.5million to £1.25million. Although this will not affect most people, it could mean more complexity for those affected, since transitional measures will need to be brought in to deal with those unfairly penalised. Again this will apply from April 2014.
If you are likely to be affected by these changes, then some forward planning will benefit you, as you will need to assess the implications.
Photo credit: Flickr: Altogetherfool