Commenting on the reduction in Annual Allowance from £50,000 to £40,000, Lifetime Allowance from £1.5 million to £1.25 million, and cap on drawdown limit Fraser Smart, managing director of Buck Consultants said:
“Making such a big change just three years after the last changes to pension saving limits is extremely poor policy making and one we will end up paying the price for over the next 60-70 years. Reducing pensions tax relief may bring in £1bn in tax revenue in the short term but coming just two weeks after the DWP launched its
‘Reinvigorating Pensions’ paper to try to get people to save more, the timing couldn't be worse. The Government needs some joined-up thinking if we are to ensure that future generations have enough savings to avoid falling back on the State to provide for them.
“Reducing the Lifetime Allowance to £1.25m because ‘98% of people approaching retirement are saving less than this’ is more or less saying the current retirement savings situation Britain is in is alright - when clearly it isn’t. People need to save more if they are to financially meet their expectations in retirement. Furthermore, given the reduction does not reflect inflation, in real terms, the maximum amount of pension allowed under the system continues to reduce.
“What is interesting is this has been deferred to 2014/15, which at least allows people to make some provisions. However, it is still an arbitrary cut to the tax free allowances for short term political expediency, and cuts the ground from the DWP’s efforts to getting a new, thriving and reinvigorated pensions system in place.
“With regard to increasing the cap on the drawdown limit, this move is likely to make drawdown a more attractive option. In a time when pension income from defined contribution schemes is under considerable pressure, anything that improves the options for members is to be welcomed.”
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