The Chancellor, Philip Hammond, announced at the Autumn Statement a cut to the money purchase annual allowance from £10,000 to £4,000 from April 2017.
The move, which is still subject to final confirmation, will affect people aged 55 and over who have taken income (as opposed to only the tax free cash lump sum) from their pension savings under the “pension freedoms” that have been available since April 2015. At the moment, people in this position are able to make pension contributions of £10,000 a year. This is now expected to fall to £4,000 a year.
Those who have opted to reduce working hours, rather than retire completely, and so wish to continue contributing to their pensions, are likely to be particularly affected.
People who have never accessed any income from their private pensions remain able to save up to £40,000 a year towards their pensions. The lifetime allowance of £1 million also remains unchanged.
There are a number of options open to you if you have already accessed your pension savings and are affected by the cut to the money purchase annual allowance. There are also, depending on the policies of your pension provider, options available that will minimise the impact of accessing your pension savings if you need to do so in the future.
This change further reinforces the need to take professional advice before accessing your pension funds under the new pension freedoms.