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Mike Morrison: Plenty to talk about behind the pension headlines

Mike Morrison

A sigh of relief from the pensions world with no further change to the previously announced reductions in the lifetime allowance (from £1.5m to £1.25m from 2014 -2015) and annual allowance (£50,000 to 40,000 from 2014 – 2015).

And defying pre-Budget rumours, the tax free lump sum remains untouched, for the time being anyway.

We also expected and got confirmation of the uplift in capped drawdown rebates form 100 per cent to 120 per cent of GAD rates.

So is that it for pensions?

Not quite. The Government will review GAD rates and the underlying assumptions “to make sure they continue to reflect the annuity market”.

Now, any review of retirement income is good but with the prognosis for annuity rates poor surely we should be looking at ways of redefining income drawdown limits away from the constraints of annuity rates? People choose drawdown instead of annuities and to tie them to gilt yields seems to lack forward thinking.

Allowing child trust funds to transfer to Junior Isas looks a positive move. This will allow savers to consolidate family savings. Encouraging people to save for their children will give a head start in funding university costs or a deposit on a first home.

Raising personal allowance to £10,000 from 2014/15 means a retired couple could earn £20,000 a year between them and not pay tax. This must be a good move.

At the other end of the scale, those with earnings of £100,000 or more who see their personal allowance drop by £1 for every £2 they earn above the £100,000 can also benefit. Making a pension contribution can reinstate the personal allowance and so will provide an effective rate of 60 per cent tax relief on contributions of up to £20,000 once the personal allowance increases to £10,000.

Finally, an interesting announcement of a new Employment Allowance of £2,000 for all businesses and charities which will reduce their NI bill. Many of these businesses will be the same ones who could well struggle to address the demands of auto enrolment  – could the two situations have been linked  – to defray some of the explicit costs of AE?

Mike Morrison is head of platform marketing at AJ Bell


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