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10 Dec 2012

Government To Cut Lifetime And Annual Allowance For Pension Savings

The government is to reduce the lifetime allowance and annual allowance for tax-free pension savings from the 2014/15 tax year, Chancellor George Osborne said as part of last Wednesday´s Autumn Statement.

The lifetime allowance, which is the maximum pension saving one may have over their lifetime, is to be cut to £1.25 million, from £1.5 million, while the annual allowance will decrease to £40,000 from £50,000. The move aims to help the Treasury raise £1 billion.

The government will hold consultations on further fixed protection for people affected by the lifetime allowance cut and on a ‘personalised protection regime´ for individuals.

The Chancellor also said that the basic state pension would rise by 2.5%, in line with the triple lock - the higher of wages, inflation and prices capped at 2.5% - to £110.15 a week next year.

In addition, it was announced that members of define contribution schemes will see the capped drawdown limit rise to 120% of the value of the equivalent annuity, from 100% previously.

The Department for Work and Pensions (DWP) is to hold consultations to provide the Pensions Regulator with a new statutory objective to assess the long-term affordability of deficit recovery plans to employers. The move comes as the government sees that volatile measures of pension scheme deficits can make managing investment plans and attracting external funding difficult for employers. The DWP will also consult on allowing schemes that undergo actuarial valuations from next year to smooth asset and liability values.

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