Pension lifetime allowance (LTA) is to be reduced to £1m from £1.25m next year, chancellor George Osborne announced in the last Budget of the current government. The figure was also dropped in 2013-2014 from £1.5m and was £1.8m in 2011-2012.
Malcolm McLean, senior consultant at Barnett Waddingham, said “From a pension point of view it is very disappointing that the chancellor has seen fit to implement a reduction in the LTA. Frankly, this is unfair, unnecessary and unwise.”
Jon Gwinnett, pensions technical manager at platform Nucleus, also agrees the reductions are unnecessary because it means many more will be brought into the scope of the tax charges, which penalise those fortunate enough to exceed the limit.
The retirement freedom rules will also be extended to those who have already bought an annuity – as of 6 April 2016. The aim is for those with an annuity to be able to enjoy flexibility in how they access the value of their annuity without interfering with binding contractual requirements. Pensioners will have the freedom to use the capital as they wish – exactly like the current rules.
People who want to sell their annuity income currently face a 55 per cent tax charge, but the charge will now be taxed at their marginal rate. As with this year’s retirement freedoms, appropriate guidance will be put in place. The consultation for this was launched on 18 March.
A new flexible Isa has also been announced, allowing money to be withdrawn and replaced from a cash Isa within the same tax year, without it counting towards the annual Isa limit. The rules will be changed in the autumn after a consultation with Isa providers.
More help has been given to first-time buyers. The new Help to Buy Isa means an investor can save up to £200 a month and the government will boost savings by 25 per cent up to a bonus of £3,000. Initial deposits of £1,000 will be allowed. Accounts will be available from autumn 2015 and will be limited to one per person, meaning people buying together can both receive a bonus, paid when the house purchase goes through.
charlotte.richards@ft.com
