The annual amount which you can save into a pension once you have already drawn benefits has been cut in the Chancellor’s Autumn Statement in a bid to stop savers enjoying ‘double tax relief’.
The move, announced by Philip Hammond in his first public test as head of the Treasury, will affect thousands of savers, aged 55 or over, who have taken advantage of the new ‘pension freedoms’ which came into force last year.
The annual allowance – the amount which can be paid into a pension without triggering a tax charge – is currently £40,000 for most people. If you have already accessed your pension savings flexibly, the amount that can be paid into pensions annually is currently £10,000. This limit will now fall to just £4,000 from April 2017 – subject to a government consultation.
The good news is that despite speculation to the contrary, the Chancellor did not announce changes to the already much-reduced lifetime allowance and standard annual allowance.
However, now the government is keen to crack down on double tax relief being gained by those drawing benefits and then reinvesting the funds in another pension so it has reduced the money purchase annual allowance. If you have already taken some money out of your pension, you should consider the timing and suitability of other planned contributions before April.
In more positive news, the income tax threshold will be increased to £11,500 from £11,000 from April. The higher rate income tax threshold will rise to £50,000 by the end of the current parliament in 2020-2021.
For more information about how your pension could be affected, please contact one of our team on 020 7636 7006.