This year’s autumn statement by the Chancellor of the Exchequer, Philip Hammond, saw the government outlining its plans for a post-Brexit economy. Many sectors of society will find themselves affected by the changes but developments relating to the rules around pensions may be wide reaching. Most of us will be anticipating drawing a pension at some point, whether that’s based on a private plan or via state provision. However, it’s those hoping to retire within the next five to 10 years who will be most affected by the plans outlined in the chancellor’s speech.
The triple lock: safe for now?
Since 2010 the so-called “triple lock” on pensions has guaranteed they will rise by 2.5%, in line with inflation or in line with the average rise in earnings each year, whichever is higher. While this has always been favourable for existing pensioners and those approaching retirement age, it’s been criticised for favouring the “baby boomer” generation at the expense of younger workers.
In his speech, Hammond committed the government to honouring the triple lock until 2020 but strongly suggested there may be a shake-up in the way pensions are calculated after that point.
Less pension freedom
The money purchase annual allowance (MPAA) has been cut from £10,000 per year to just £4000. Changes to pension rules in April 2015 have meant it has been possible to withdraw money from your pension pot while claiming tax relief on the contributions you make to your pension. People who are not making withdrawals can pay £40,000 a year into a pension without incurring a tax charge. This amount remains the same. However, once you’ve triggered the MPAA by withdrawing your savings then the amount drops to £10,000. From April 2017, this will be cut again, to £4000.
Protecting your pension
If you’ve already triggered the MPAA you may be able to “carry forward” pension contribution limits from the past three years if you haven’t already used them.
Remember than Alan Boswell Group will be happy to advise you on pension matters and will keep you abreast of the new changes as they are announced.
The value of tax benefits depends on your individual circumstances. Tax laws can change.