Summer Budget 2015: As announced in March 2015’s Budget, The lifetime allowance for pension contributions will be reduced from £1.25 million to £1 million from 6 April, the government confirmed today (8 July).
In the Summer Budget 2015, chancellor George Osborne also confirmed that transitional protection for pension rights already over £1 million will be introduced alongside this reduction to ensure the change is not retrospective. The lifetime allowance will be indexed annually in line with the consumer price index (CPI) from 6 April 2018.
The chancellor also announced that the annual allowance for top earners will be reduced. The government will restrict the benefits of pensions tax relief for people with incomes above £150,000, by tapering away their annual allowance to a minimum of £10,000.
Most people can contribute up to £40,000 a year to their pension tax-free. From April 2016, this amount will be reduced for individuals with incomes of over £150,000, including pension contributions.
Stewart Hastie, pensions partner at KPMG said: “The reforms will create headaches for employees, employers and pension schemes.
“By design, individuals going above the annual allowance are effectively being taxed twice. But under the proposals, a significant number of impacted individuals are unlikely to know what their annual allowance is until it is too late to do anything about it. Individuals may decide to restrict their pension savings to £10,000.
“Individuals will need more help and information from their employers and pension schemes. Employers and schemes must ensure they have the right processes and systems in place to cope with these changes.
“Employers will also need to consider wider benefits as pensions become significantly less valuable than just paying cash for a much wider range of the UK employees than ever before.”