It’s
extraordinarily disappointing that the Government has decided to penalise
pension saving again within today’s Autumn Statement. It appears no Government
can resist this seemingly easy option. The most significant changes mean the annual
allowance will fall to £40,000 a year, and the lifetime allowance to £1.25m,
with effect from 6 April 2014. This is down from the current limits of £50,000
and £1.5m which have only been in force since 6 April 2011.
The changes
will primarily affect people in defined benefit schemes. These are not
necessarily the very richest, but could be moderate earners who have worked in
the same profession for a long period of time, such as teachers, doctors and
civil service workers.
While this
is a short-term win for the Treasury, in the longer term it will have a
detrimental impact on savings in the UK. We need a simple, consistent savings
system that people can trust. And which encourages them to save without having
to worry rules will change, yet again, next year or the year after. Perhaps now
is the time to take long-term pension decisions out of the hands of politicians
by forming an independent pension commission.
Surprisingly
the Government has also u-turned on capped drawdown, pushing the maximum income
back to 120% only 18 months after reducing it to 100%. I recognise there is an
urgent need to help people who have seen a significant fall in their drawdown
income. However we have to tread with caution as funds can be quickly
diminished by taking 120% each year.
So a
balance needs to be struck between short-term income needs and ensuring income
is secured for life. The risks of remaining in drawdown increase substantially
as people get older, so many will wish to consider some form of annuity once
they’re in their 70s.
