Yesterday’s pension changes add more flexibility to the annuities system – but cut tax-free allowances, according to The Week.

If you are already one of those people saving for the long term, you’ll know there are big changes afoot in the way we save into – and draw money from – pensions. Some major reforms, announced in last year’s Budget, come into effect from next month, and further pension changes were announced today in George Osborne’s fifth Budget. But what does it mean for your pension?

Lifetime allowance

The chancellor has now confirmed that the maximum amount you can save into a pension over a lifetime will fall to £1m, down from the current £1.25m, from April 2016 – although this will affect fewer than 4 per cent of savers approaching retirement age. Meanwhile, the lifetime tax-free allowance will rise with inflation from 2018.

Tom Mcphail, head of pensions research at Hargreaves lansdown said, “Another cut to the lifetime allowance will bring increasing numbers of middle earners into paying punitive tax charges and added complexity into the system,”  adding that the cap aligned with inflation from 2018 is a “welcome” move.

Annuity changes

Changes have been  introduced to add more flexibility to the way that pensioners access their savings.

One key fact that was introduced in yesterdays Budget includes allowing those who have bought an annuity – a guaranteed lifetime income – to be able to cash them in from April 2016, subject to agreement from the annuity provider. The cash could then be taken all at once, or as an income over several years to give further freedom back to savers, and would be taxed at the saver’s usual rate.

John Cridland , director-general of business lobby CBI said,”Giving savers greater freedom over their pensions, including creating a secondary annuities market, boosts choice but after a period of flux what’s needed now is breathing space for the industry and consumers to get to grips with all the changes,”

The reforms that was introduced yesterday follow on from landmark measures tabled last year that allow those aged 55 and over to access the cash in their pension pot from this April.

source:    19/03/2015