Only one change was announced in relation to pensions, and this relates to contribution limits. The current annual contribution allowance is £40,000, but this reduces to £10,000 in cases where the pension holder has begun drawing down income (as opposed to tax-free cash) from a ‘money purchase’ pension. This £10,000 limit is now to be reduced to £4,000, the aim being to reduce the impact on the Treasury of people re-cycling pension money and claiming tax relief on the same money twice.
In the words of ex-pensions Minister Steve Webb, “As soon as someone draws a pound of taxable cash using the ‘pension freedoms’, the amount they can save in a money purchase pension would be slashed from £40,000 to £4,000”.
It has been suggested that this may be a half-way house to a complete bar on recycling, by reducing the limit to nil.
Looking further ahead, more significant pension changes seem likely. Mr Hammond commented that pension tax relief is one of the most expensive of all reliefs, and that two-thirds of the benefit goes to higher and additional-rate taxpayers. This is at variance with the Government’s aim to focus resources where there is most need.
A reduction in the availability of higher-rate tax relief may therefore be on the cards in the longer term and, as ever, best advice must be to take advantage of current levels of tax relief while they are available.
The cost of State pensions is another concern to the Government, and the Chancellor hinted that the current ‘triple lock’, whereby State pensions are guaranteed to increase each year by whichever is the highest of average earnings, the rate of inflation, and 2.5% may not be affordable after 2020.”