Potential attack on Annual Allowances

NOTE: This post is more than 12 months old, and the information contained within may no longer be accurate.
Attack on Pensions
Attack on Pensions?: Flickr/M Bilokur

The Daily Mail, Financial Times and Daily Telegraph have all run articles suggesting that pensions may be attacked in George Osborne’s budget. I’ve already written on why this is madness, as we need wealthier people to be pro-Pensions and even question whether the long-term tax take will actually decrease from that which is expected. So let’s ignore my one prior assumption: the sanity of the chancellor.

Assuming pensions are attacked next week, there are four obvious areas:

  • Reduction in the annual allowance from £50,000 – say to £20,000 or £30,000
  • Removal of the ability to Carry Forward unused allowances – which in some cases can quadruple the annual allowances above
  • Reduction of the tax relief from marginal rate to lower level – currently there is a tax relief at an effective rate of 40-60%. The Liberals have already suggested 30% in their manifesto, maybe they will argue the country can only afford 20%, given their increased bargaining power in the coalition following Conservative benefit reforms
  • Removal of the Pension Commencement Lump Sum – certainly the dread scenario which could actually basic rate tax payers the hardest! This would also be an effectively retrospective tax.

It’s the annual allowable amounts that the mainstream media have seized upon, and whilst we cannot guarantee changes will not be retrospective there is a solid argument that those who can afford to, and were already planning to make contributions, should do so before the autumn statement on the 5th December.

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