Osborne's 2012 Autumn Statement - Good News or Bad?Posted on: 11 December 2012 by Andrew Stallard
Andrew Stallard analyses what the Chancellor's statement means for pensions.
In short, for most of us, it held a mixture of good and bad news. There were announcements that will affect individuals and also companies, with money being taken in some places, given back in others. There was a fairly mixed bag of announcements in the Chancellor's Autumn Statement, given to the House of Commons on the 5th December, so for this week's article, we've sifted through all the details, picked out the key points and reviewed them.
In the statement, pensions and pension tax relief and allowances came in for a lot of attention. The Chancellor announced that there will be a review of pension fund accounting methods, following concerns about the effect of rising deficits on business. The Confederation of British Industry (CBI) had called for a review of how defined-benefit pension liabilities are accounted for on company balance sheets, as at present, the CBI argued it leads to 'spikes' in the figures, meaning more money has to be put into schemes. (1)
Pension allowances, both annual and lifetime, took something of a hit. At present, the annual allowance is £50,000 which means that you can receive tax relief on pension contributions up to £50,000 in a year. The lifetime allowance for tax relief on contributions is currently £1.5 million. That's about to change. The annual allowance will be cut to £40,000 and the lifetime allowance will be cut to £1.25 million, with the reductions coming into effect in from 2014, so a little way off yet, and from recent past experience it's also entirely possible that a U turn may happen.
On a more serious note, one rather surprising statistic quoted by the Chancellor was that 99% of pension savers contribute less than £40,000 a year to their individual pension plans. (2) However, the reduction in the lifetime allowance is likely to have an impact on a number of people, including higher earners in the teaching profession, the police and the health service among others.
Finally for pensions, there was some good news for pension savers who don't want to buy an annuity when they retire with a U turn on the capping of the drawdown limit for pensions. In April 2011, the limit was reduced from 120% to 100% (of the value of an equivalent annuity).This reduction last year, coupled with falls in gilt yields, meant that some drawdown customers had seen the maximum amount that could be withdrawn from their pension each year fall by up to 50%. The government imposes a limit on capped drawdown to ensure people don't take their money out of their pensions too quickly and have to then rely on state means-tested benefits. (3)
Away from pensions, there was good news about ISAs with the annual ISA allowance raised from £11,280 to £11,520. There is also the possibility that you will be allowed to hold Alternative Investment Market (AIM) shares in a stocks and shares ISA. However, this comes with the caveat that if it is to happen, it won't be until 2014/15 and there are also tax implications as investors in AIM listed shares already receive some forms of tax relief. (4) We'll keep you updated with how this progresses.
Further good news came in the form of the raising of the Inheritance tax threshold. The nil rate band is frozen at £325,000 until 2014/15, but is set to increase by 1% to £329,000 in 2015/16. (5)
And lastly, a few other nuggets of good news from the statement. The planned 3p rise in fuel duty in January has been postponed again, after being postponed from August which will be welcome news to motorists. Welcome news, too, is the raising of the personal tax allowance from £8,105 to £9,440 from April 2013. And for small business owners came a boost with the news that the rate relief for small businesses will be extended until April 2014.
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