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Autumn Statement 2012 (Pensions) – Pension saving still valuable, but risk of not reviewing heighten

The Autumn Statement delivered today stated that the Lifetime Allowance will be reduced from £1.5million to £1.25millon and the Annual Allowance from £50,000 to £40,000.  Both changes will come into effect from the 2014/15 tax year.

The other key change was that the limit on Capped Drawdown extractions from pensions in retirement is set to increase.  These will move from 100% of the Government Actuaries Department (GAD) rate (i.e. the rate broadly equivalent to a single life annuity) to 120% of that value.

Whist in particular, the reductions to Annual Allowance and Lifetime Allowance are unwelcome, they do not reduce the appeal of using pensions as a retirement savings vehicle.  Many of the perennial issues people state as reasons not to use pensions (in particular, forced annuitisation) have been removed in recent years, and understanding the rules and making best use of them is where a good financial planner can assist you.

Pensions are more valuable than ever in planning tax efficiently for the future.  It’s just that the magnitude of the funds accumulated in them will be lower, although £1.25million is still a very valuable tax-advantaged fund to have amassed.

The changes have also raised a number of issues for existing pension holders, including those with existing transitional protection from the Lifetime Allowance.

Final salary pension members, including Mid-salary Doctors on Specialist Training contracts, GPs, Teachers could be hit, if not advised accordingly. People who have amassed existing pension funds could also find that their existing funds grow above the Lifetime Allowance.

Even Enhanced Protection holders have an increased possibility of an annual tax bill from 2014/15, which they may have considered not possible.

As always, a regular review of how changes impact your position is critical in identifying any specific issues and mitigating their impact.

 

 

Date: 5th December, 2012
Author: Tony Slocombe

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