New pension rules just announced
The Coalition government has this morning announced the changes to pension legislation that were first contemplated in June’s Budget.
To summarise, from April 2011 the Annual Allowance will reduce from £255,000 to £50,000. This is the most an individual can put into a pension in any tax year and get full tax relief. Furthermore, from April 2012 the Lifetime Allowance will reduce from £1.8m to £1.5m. This is the most an individual can put into a pension in a lifetime and get full tax relief.
This is another nail in the coffin for the public’s perception of pensions. I am firmly of the belief that if you still have 20-40 years to go to retirement, then you cannot expect the Government or even your employer to bail you out – the responsibility resides firmly with the individual. Yet the Government sees fit to reduce the appeal of pensions ever further. The only saving grace is that they weren’t as aggressive as originally proposed (they had suggested in the Budget that the Annual Allowance would fall to between £30,000 and £45,000).
They also claim that the new system is going to be simpler, but the reduction in the Lifetime Allowance presents problems to anyone who has already built a pot in excess of the new limit. When the Lifetime Allowance was first introduced in 2006, a whole series of complicated rules had to be introduced to protect people in exactly this situation. I can only imagine that the Government has given itself an extra year (to April 2012) because they recognise the complexity involved.
In my opinion, disincentivising pensions is a short term fix that creates longer term problems as fewer and fewer people opt to plan for their retirement. I’m worried enough about pensions (or rather the lack of them) as it is.