Further reductions in the pensions Lifetime Allowance
The pensions Lifetime Allowance, which restricts the value of tax-relieved pension savings an individual can make in his or her lifetime, will reduce from £1.25m to £1m from April 2016.
As was the case when the Lifetime Allowance was last reduced from £1.5m to £1.25m from April 2014, two forms of transitional protection will be put in place to protect those who have already exceeded the new limit. The details of these protections are yet to be confirmed, but will likely include:
- Individual protection: giving individuals their own personal Lifetime Allowance (above the prevailing standard Lifetime Allowance of £1m) – these individuals can continue to build up further benefits but any benefits that are built up in excess of the personal Lifetime Allowance will incur a Lifetime Allowance tax charge which results in these benefits being taxed at 55%.
- Fixed protection: allowing individuals to retain a £1.25m Lifetime Allowance, but this is immediately lost if new benefits are built up. There is some small consolation for this reduction in the Lifetime Allowance, with the announcement that it will start to increase in line with CPI – but only from 2018 onwards. The Annual Allowance, restricting the tax-relieved savings an individual can make each year, is to remain unchanged at £40,000.