George Osbourne confirmed that the lifetime allowance will fall from £1.5m to £1.25m from April 2014, as previously announced. My prediction is that the government will reduce this to £1m in due course. The annual contribution allowance will also reduce to £40,000 from the current level of £50,000.
These reductions could draw many people sat very happily in defined benefits (otherwise known as final salary) pension schemes in to the complexities of tax planning and the associated legislation.
As a consequence of the reduction in the lifetime allowance the Government will introduce individual protection 2014 (IP14) from 6 April 2014. Individuals with IP14 will have a lifetime allowance of the value of their pension savings on 5 April 2014, subject to an overall maximum of £1.5 million.
This is a highly complex area of financial and tax planning which we are working on for many of our clients currently, so if you would like advice bespoke to your circumstances to ensure you optimise your pension income, get in touch.