Pensions lifetime allowance to reduce to £1m

Pension-pot-follows-istock-2015

Budget 2015: The government has announced that it will reduce the pensions lifetime allowance (LTA) limit to £1 million from 6 April 2016.

It was also announced that from 2018, the limit will be index-linked and adjusted according to the level of inflation.

The current lifetime allowance has stood at £1.25 million since April 2014. It was previously £1.5 million before being cut by the government in the 2012 Autumn Statement.

Chancellor George Osborne announced the plans in his 2015 Budget. He said the reduction would save £600 million.

However, he ruled out cuts to the annual allowance, which is currently set at £40,000.

He said: “Over 96% of individuals currently approaching retirement have a pension pot worth less than £1 million, so this change will affect only the wealthiest pension savers.”

Malcolm McLean, senior consultant at consultancy Barnett Waddingham, added:Frankly this is unfair, unnecessary and unwise.

“Although a million pounds still appears to be, and is, a very large sum of money, which clearly is beyond the aspirations of the average pension saver, it does mean that for a defined contribution pension pot it actually only produces an annual pension of little more than £27,000 (inflation proofed and providing for a spouse).

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“In many respects, the concept of having a lifetime limit is outdated and unnecessary, now that the annual allowance has been reduced to £40,000 and is the effective controlling mechanism for limiting tax relief on pension saving.

“The existence of the LTA and the regular monitoring against it overly complicates pension saving at a time when strenuous efforts are being made through automatic-enrolment and other measures to encourage saving into a private pension.