The Chancellor of the Exchequer, George Osborne, has delivered his annual Autumn Statement.
As expected, he has announced a series of changes impacting on the pensions system.
Tax changes
From 2014-15, the Government will reduce the lifetime allowance from £1.5 million to £1.25 million. This is the maximum value of pension savings that any individual is allowed to build up before retirement. The allowance was previously cut from £1.8 million on 6 April of this year.
Transitional protection will be offered for individuals who already exceed the reduced lifetime allowance figure. The Government has also spoken of offering an additional "personalised protection regime for individuals", without giving further details as to how this might operate.
In addition, the annual allowance will be reduced from £50,000 to £40,000. This is the maximum value of pension savings that can be amassed in any one tax year. The allowance was previously cut from £255,000 in April 2011.
While these changes will primarily impact on high earners, they may also affect a significant number of middle-income earners whose rights in Defined Benefit pension schemes undergo a major increase from year to year – for example, on receiving a pay rise.
Regulatory changes
The Department for Work and Pensions is to consult on providing the Pensions Regulator with a new statutory objective to consider the long-term affordability of deficit recovery plans to sponsoring employers. This change is being presented as a means of lessening the burden on business and prioritising growth.
In addition, the DWP is to consult on whether to allow pension schemes undergoing valuation from 2013 onwards to smooth their asset and liability figures. This is intended to reduce the volatility inherent in funding arrangements – a perennial complaint from employers who sponsor Defined Benefit schemes.
Drawdown changes
The Government will increase the capped drawdown limit for pensioners from 100% to 120% of the value of an equivalent annuity. This change impacts on retired people who choose not to use their pension "pot" to purchase an annuity immediately on retirement. It is consistent with previous changes in this area, which have steadily increased the flexibility available to retired people who do not wish to use all their pension savings to purchase an annuity. It will come as welcome news for older people who are concerned at historically high annuity prices.
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