What Did The 2015 Budget Mean For Pensions? The 2 Main Changes Explained
In the last Budget before May’s General Election, George Osborne outlined several important changes for all aspects of the economy. As an employee benefits blog, we are most concerned with what he had to say about pensions and the main points he had are discussed below.
Pensions have been subject to reform after reform over the past few years and many expected even more changes to come in George Osborne’s last budget of this government. There certainly were more changes for the pensions world and we explain what they were and what they mean in this blog post.
1. Pension pot lifetime allowance to be reduced
The lifetime allowance is the maximum amount that can be saved into a pension and is set to be lowered by 20% from £1.25million to £1million exactly. A 55% tax is charged on any withdrawals or annuity purchases over the limit instead of their usual tax rate.
George Osborne called the current £1.25million level “unsustainable” and although the change will disproportionally affect high earners or those who begin saving early on in their careers, only 4% of the whole UK population are expected to be affected by this change.
Although the lifetime allowance is to fall now, from 2018 it will rise again in line with inflation.
2. Current pensioners will be able to sell their annuities
Another major change announced by Mr Osborne was the plan to allow current pensioners to sell their annuities. From April of next year, any pensioner who has already bought and is receiving money from an annuity will be permitted to sell that annuity on to a 3rd party – so long as the provider agrees.
This means that those pensioners who have just missed out on the new pension reforms which come into force on April 6th – allowing more flexibility and choices rather than requiring savers to purchase an annuity – will still be able to benefit and won’t be forced to live on with their annuities with poor rates.
Photo credit goes to London Picture Capital