At present the amount of pension savings that can be accumulated by an individual is limited by both an “annual allowance” and a “lifetime allowance”.
As the names would suggest the “annual allowance” is a limit on the amount of tax advantaged pension savings and individual can make in a single “pension input period”, not to be confused with the tax year. This allowance used to be £255,000 per annum, which meant that it was not a concern for all but the most wealthy pension savers. Recent legislation has sought to reduce this allowance though, and on 6th April this year it will reduce to £40,000 per annum.
The “lifetime allowance” restricts the amount of pension savings one can accumulate in their lifetime. Any excess over the allowance carries a rather severe 55% tax charge. Like its annual counterpart, the lifetime allowance has been on the chopping block in recent budgets, falling from a previous £1.8m to £1.25m on 6th April 2014.
Some commentators are predicting that the government will announce the abolition of the lifetime allowance in the 2014 budget (at least for some individuals). This is one prediction which I do hope turns into reality.
It seems counterintuitive to limit an individuals lifetime pension savings, which are influenced by market growth and other factors over which they have no control, when we are already setting a limit on the annual pension input amount.
Surely it makes far more sense to simply limit the annual level of contributions, and stop taxing people on the growth in their pension funds. After years of increasingly complex pension legislation, any move to simplify things is surely a step in the right direction.
If you would like assistance with your own pension provision, please get in touch to arrange your discovery meeting, provided at our expense.
