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06 May 2015

2015 Budget announcements

An overview of the 2015 Budget’s main pension proposals.
 
Tax relief limits 

The 2015 Budget announced that the Lifetime Allowance (the limit on how much you can save across all of your pension schemes before retiring without being charged tax) will be reduced from £1.25m to £1m from 2016. 
 
In addition, from 2018, the Lifetime Allowance will be index-linked based on CPI inflation.
 
As a result, protection is likely to be offered to those whose savings are already over £1m. This may be similar to the Fixed Protection and Individual Protection which was available for the 2014 changes, when the Lifetime Allowance was reduced from £1.5m to £1.25m.
 
There was no change to the Annual Allowance.
 
Buying and selling annuities
The Budget also announced that the pension freedoms (which were announced in in the 2014 Budget and due to come into effect on 6 April 2015), would be extended to include those who have already bought an annuity.
 
This change does not apply to pensions paid from the PCPF and, in general, members of the PCPF do not have annuities. However, there are some cases (such as members who have retired with AVC benefits) where this change may be relevant, so some further detail is outlined below.
 
From April 2016 – as long as their annuity provider agrees – pensioners who have annuities will be allowed to sell the income they receive from their annuity without unwinding the original annuity contract. 
 
These pensioners will then have the freedom to use that capital as they want. They can take it as a lump sum, purchase a different annuity or place it into drawdown to use the proceeds more gradually.
 
At present, those wanting to sell their annuity income to a willing buyer face a 55 per cent tax charge, or up to 70 per cent in some cases. However, the tax charge will be reduced under the new measures, so people are taxed only at their marginal Income Tax rate. 
 
It will be important for any individuals considering selling their annuity to seek advice regarding their options and ensure they are in a position to make informed decisions. The government will be working with the Financial Conduct Authority (FCA) to introduce guidance and other consumer protection measures. 

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