After the budget, here’s how to hand yourself a better pension
Chancellor Jeremy Hunt’s overhaul of the rules on how much people can stash away in their pensions has been described as a handout for the very richest in Britain.
For most workers, the budget would appear to have precious little in terms of retirement savings. So what do the pension announcements mean for the 99% – and how can you make the most of your retirement plans?
The headline announcement was that the pensions lifetime allowance is to be done away with. Previously, it stood at £1,073,100, which meant that if you saved more, you would end up paying tax charges of up to 55% on the excess amount.
From next month there will be no limit on how much people can build up tax-free over their lifetime. Described as a giveaway to the rich, it has been dismissed as being only relevant to a very small percentage of the population.
The second key move was an increase in the annual allowance – how much people can save into their pension pots tax-free every year – from £40,000 to £60,000. This includes contributions by both you and your employer. “Most basic-rate taxpayers can claim a 25% tax top-up on eligible contributions, meaning that, for every £100 you put into your pension pot, HM Revenue and Customs effectively adds another £25,” says Becky O’Connor of PensionBee. If you save more than the allowance, you don’t get the tax relief, which has increased by £20,000.
One significant change for people who are feeling the pressure of the spiralling cost of living is the increase in the “money purchase annual allowance” (MPAA).
This is a limit on how much people over 55 can pay into a defined contribution pension with tax reliefs, once you start drawing an income from your retirement pot. This was £4,000, but has now been moved up to
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