Alistair Cunningham shares his thoughts on the Autumn Statement 2012
The change of the lifetime allowance to £1.25m (down from £1.5m today and £1.8m less than 12 months ago) is the most insidious of all the proposed changes. It hits hard at middle Britain, particularly those with privately funded pensions. Anyone breaching this allowance will pay a 55% tax charge on their excess benefits, which is based on the monetary value of a money purchase pension fund, or 20 times the pension provided from a defined benefit or scheme pension.
Figures prepared by this firm today show that an individual aged 65, providing an inflation linked pension which gives a two-thirds benefit to a spouse or civil partner will only be able to buy a pension of around £26,000 per annum. On the same basis anyone in a defined benefit scheme (for example MPs and other public sector workers) would be able to provide £62,500. This further widens the gulf between the public and private sector, as defined benefit pensions are all but dead in the private sector.
Changes to the capped drawdown basis make little difference, as in a climate of dismal economic growth pensioners need to be very careful around taking too much from their pension pot. A 65 year old can currently take 5.3% of their pension fund per annum, which on the 120% basis would be 6.4%. Given the current inflation rates and anticipating a stagnant economy, I would strongly caution any pensioner against taking more than 5% per annum.
The reduction in the lifetime allowance, the seventh change in six years, is absurd as it is both unlikely to have any real fiscal impact but further undermines the confidence in a consistent pension policy.
A great budget for Financial Planners, a poor budget for our clients – lots of need for advice!
Read Karen Barrett, Chief Executive of unbiased.co.uk, comments on the Autumn Statement here.