Pensions allowance cut by £250k
29th Mar 2015
George Osborne has announced in the 2015 budget that the lifetime allowance for pensions will be cut from £1.25 million to £1 million in order to “save around £600 million a year,” the Chancellor told the House of Commons.
Osborne stated that “fewer than 4% of pension savers currently approaching retirement will be affected”, and that from 2018, the lifetime allowance will be indexed to protect against inflation.
Although the changes have been welcomed by some, such as Graham Vidler, the National Association of Pension Funds’ director of external affairs, concerns have been raised about the constant reduction of the lifetime allowance, and what this may mean in a few years for later generations. Vidler stated that he hoped that “past performance is not an indication of future cuts” as the lifetime allowance has “been cut by £0.5m in the last three budgets, which if repeated would leave an LTA of £0.5 million” which would buy an income of around £10,000 per year.
As well as reducing the lifetime allowance for pensions, Osborne established that pension freedoms which allow savers to withdraw from their pension whenever they want will be extended to the 5 million people who currently have an annuity.
People who are locked in an annuity will be able to sell it from 2016, which will create an unexpected market for annuities which has caused financial advisers to inform people to proceed with caution when making the transition.
Some believe that this policy may create multiple issues whilst solving others Tim Wixted, of professional negligence solicitor’s NeglectAssist, said that moving out of an annuity causes income to “stop being stable and starts being more unpredictable,” as many funds are linked to equities. “If the stock market crashed,” Wixted stated, “retired people would be left in a disastrous situation.”
Responding to these qualms, Osborne confirmed that a consultation on how to create a secondary annuities market would occur.