Major changes to pension allowances following the budget

Major changes to pension allowances following the budget

It was labelled the “budget for growth”, and it certainly was in respect of retirement planning with some changes of note announced. For many years, there have been few positive aspects relating to pension and retirement planning in the Chancellor’s annual Budget. This trend changed today as Jeremy Hunt announced an increase to the annual allowance.

The annual allowance is the amount individuals can receive tax relief on when investing in their pension plan each year and this will be increasing from £40,000 to £60,000. This is the first increase for many years and will appeal greatly to those who are serious about retirement planning as well as those looking to reduce the tax burden on both themselves and/or their business.

The second pension related announcement was around the lifetime allowance, which is the amount that can be held in pension plans before suffering extra tax charges as high as 55% of the value above this amount. Over many years, this has been reduced and currently stands at £1.073 million, but the Chancellor today announced that limit will no longer apply as the lifetime allowance was abolished.

The lifetime allowance has been a major factor when deciding whether to pay into a pension, this should no longer be part of the planning process going forward. The abolition of this means individuals now have an increased annual allowance to allow them to grow their pension faster, while reducing the tax they pay each year with no limitation as to the level their pension fund can grow.

The final significant change in pensions, is that despite the abolition of the Lifetime Allowance, the maximum tax free lump sum that can be taken from a pension will be capped at £268,275.

If you have any questions in relation to the pension announcements, please get in touch with a member of our Wealth Management team or your usual Azets advisor.

The purpose of this blog is to provide technical and generic information and should not be interpreted as a personal recommendation or advice. 

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