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Govt expected to resist major Budget pension changes

George Osborne 480

Chancellor George Osborne is expected to resist Liberal Democrat calls for further cuts to pensions tax incentives in his Budget later this month.

The coalition Government has announced a series of major reforms to the pensions system since it came to power in May 2010.

The lifetime and annual allowance for tax-free pension saving have been cut twice. The first reduction, announced in the ‘emergency’ Budget in June 2010, saw the annual allowance reduced from £255,000 to £50,000 and the lifetime allowance slashed from £1.8m to £1.5m.

In his Autumn Statement in December last year, Osborne confirmed the lifetime allowance would be further reduced to £1.25m while the annual allowance will drop to £40,000.

The most recent changes are due to come into force in 2014/15.

A Liberal Democrat consultation paper published last month calls for additional reductions in both the annual allowance to £30,000 and the lifetime allowance to £1m. It also suggests ministers should consider reducing the 25 per cent tax-free lump sum.

MGM Advantage pensions technical director Andy Tully says: “I am not expecting any major pension announcements in the Budget.

“The Government has only just announced a cut in the lifetime and annual allowance, so it would be unthinkable for them to fiddle with pensions tax again.”

Prudential head of business development Vince Smith-Hughes says: “The best thing the Government could do at the Budget is leave pensions alone.

“The Autumn Statement announced some significant pension changes which have not yet come into force, so it would not be helpful if the chancellor changes things significantly again.

“One thing the Government could do is commit to not making any more significant changes for the rest of this Parliament.”

Cicero Consulting chief corporate counsel Iain Anderson says: “The Eastleigh by-election could be a game changer for the Budget and I now expect Nick Clegg and Danny Alexander to push more stimulus and demand side measures.

“But it will make the Tories very wary of yet more pensions reform which would hurt their vote harder than others.”

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