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Pensions and investments
Reducing the pension annual and lifetime allowances
The pension annual allowance has been £50,000 since 2011/12, but it is being reduced to £40,000 from 2014/15. Unused annual allowance from the three previous 'pension input period' years (annual periods commencing from when the pension started or from when the first contribution was made after 6 April 2006 if the pension started before this date) may be carried forward and added to this annual allowance. If an individual's pension savings for a tax year exceed this total, the annual allowance charge is applied to the excess. The annual allowance charge is linked to the individual's marginal rate of income tax.
The pension lifetime allowance for an individual has been £1.5 million since 2012/13. It is being reduced to £1.25 million from 2014/15. If an individual receives pension benefits in excess of the lifetime allowance then the lifetime allowance tax charge is applied to the excess. The tax rate is 25 per cent if the excess is taken as a pension and 55 per cent if it is taken as a lump sum.
A transitional protection regime will also be introduced for individuals with UK tax relieved pension rights of more than £1.25 million, or who think they will exceed £1.25 million by the time they take their pension benefits. This is known as ‘fixed protection 2014' and individuals will need to inform HM Revenue & Customs by 5 April 2014 if they wish to rely on it. The downside of the protection is that individuals in a defined pension contribution scheme must ensure that no further pension contributions are made to the scheme after 6 April 2014.
Individual savings accounts (ISAs)
|Overall investment limit||£11,520||£11,280|
|Including cash maximum of||£5,760||£5,640|
|Junior ISA: Overall investment limit||£3,720||£3,600|
Pensions drawdown policy
As announced in the Autumn Statement 2012, legislation will be introduced in Finance Bill 2013 to increase the capped drawdown limit for pensioners of all ages with these arrangements from 100 per cent to 120 per cent of the value of an equivalent annuity. Following consultation, the legislation has been revised to remove the rule requiring the maximum drawdown pension to be recalculated after a pensioner with transitional protection from the Finance Act 2011 rules, transfers to another scheme, so ensuring that transfers do not affect the capped drawdown limit. These changes will have effect from 26 March 2013.
Pensions tax: abolition of contracting out
As announced in Budget 2012, legislation will be introduced in Finance Bill 2013 to bring tax legislation into line with Department of Work and Pensions legislation which abolished contracting out through a defined contribution pension scheme from 6 April 2012. Following consultation, the legislation has been revised to clarify the types of payment that would be considered a 'member's contribution' for the purposes of a short service refund lump sum.
Equitable Life ex-gratia payments
The Government will make an ex-gratia payment of £5,000 to those policyholders who bought their Equitable Life With-Profits Annuity before 1 September 1992, and are living at the time of this announcement. A further £5,000 will be available to those policyholders who meet the above criteria and are in receipt of Pension Credit. These one-off payments are in recognition of the resulting pressures this very elderly group face, having not received the income they hoped for from their Equitable Life annuity. Payments will be made in 2014/15 or earlier if possible.
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