With speculation that the Chancellor is poised to make welcome increases to pensions allowances in Wednesday’s Budget, Aegon welcomes the moves but sets out how much higher they could have been had they kept pace with inflation and not been subject to steep reductions in previous years.
Steven Cameron, Pensions Director at Aegon explains: “It will be really good news for potentially millions of pension savers if the Chancellor announces increases to some or all of three key pensions allowances in the Budget. In his November Budget the Chancellor confirmed the state pension ‘triple lock’ would be honoured this April. This time, here’s hoping for a private pension ‘triple unlock’ of the Lifetime Allowance, the Annual Allowance and the Money Purchase Annual Allowance. It’s now widely accepted that these ‘allowances’, which act as restrictions, can discourage individuals later in their working lives from staying in or returning to the workforce. Any increases to these will be good news and in line with the Chancellor’s aim to get this group off the golf course and back to work. We’re hoping for bold increases as each of the allowances was far higher at some point in the past and if they had been inflation protected rather than cut back by previous Chancellors, much more could have been built up in pensions to provide more comfortable retirements.
“The Lifetime Allowance (see Note 1) is currently £1,073,100 and under current rules will stay frozen at that level until April 2026. It was at its highest back in April 2011 when it was £1.8m. Had it increased in line with inflation each year, then from this April it would have been almost £2.5m.
“The Annual Allowance (Note 2) is currently £40,000. It has been subject to the most extreme changes and cuts in previous years. Prior to April 2011 it was £255,000, but was cut back to £50,000 on 6 April 2011 and then to £40,000 in April 2014. Had it been increased each year from its peak in line with inflation, it would now be over £367,000.
“The Money Purchase Annual Allowance (Note 3) currently sits at £4,000 but when initially introduced back in April 2015, was set at £10,000. Had it been increased in line with inflation each year, then from this April, it would have been around £12,700.”
