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Changes to pensions: what do you need to know?


Fares are due to rise at a time when many passengers are suffering from the recession. 

The chancellor has announced that the lifetime limit on tax-free pensions savings will be scrapped and some annual allowances increased. 

The government has announced changes to its employment policies to encourage older people to return to work, but it is unclear how many will benefit from the new measures. 


Making sense of the pension lifetime allowance 

The lifetime allowance is the maximum amount of pension savings an individual can build up over their career without having to pay additional tax. The current £1,073,100 limit was due to last until 2026, but has now been frozen at £1 million. 

The speculation was that the ceiling would be raised to £1.8 million. 

However, chancellor Jeremy Hunt announced in the Budget that he would scrap the allowance altogether. 

The charge will be removed from 6 April 2023 and abolished from April 2024. 

The current allowance applies to private pensions (defined benefit and defined contribution). The state pension is not affected by this change. 


Pension allowances 

The annual allowance is a limit on the amount of money an individual can pay into their private pension each tax year without incurring tax penalties. The current annual allowance is £40,000. 

Mr Hunt announced that the maximum amount taxpayers can earn before they have to pay income tax will rise from £50,000 to £60,000. 

If you go over your tax-free allowance, you will be charged extra tax. 

The money purchase annual allowance will change. 

People who have started drawing some of their defined contribution pension but want to continue working and saving more face a dilemma. 

From 6 April, the allowance will increase from £4,000 to £10,000 a year. 


How many people will be affected by these changes?

The government has raised an additional £8 billion by reducing the lifetime and annual pension allowances since 2010, according to the Institute for Fiscal Studies (IFS). 

The chancellor said the government would remove the lifetime pension allowance to keep senior doctors in the NHS, and to stop other professionals from retiring early. 

But he could not say how many staff would continue to work for the organization as a result. 

The government expects to lose about £800m a year from 2025-26 as a result of abolishing the lifetime allowance and gaining about £300m a year through increasing the annual allowance. 

The Office for Budget Responsibility, a government agency that forecasts economic developments and measures the effects of policy changes on the economy, said it thought that both measures would increase employment by 15,000 workers. 

The IFS said the government's estimate that its changes would increase the number of people in work by 200,000 was "optimistic" and unlikely to play a big part in improving employment rates. 


State pension 

The state pension is a monthly payment made by the government to people who have reached the qualifying age of 65 and have paid enough national insurance contributions. 

On November 23, the government announced that the state pension would increase by 10.1%--in line with September's Consumer Prices Index (CPI) measure of inflation.


State pension age 

The government estimated that 12.4 million people were receiving state pensions in 2012. 

Men and women born between 6 October, 1954 and 5 April, 1960 receive a state pension at the age of 66. 

For people born after April 6, 1951, the state pension age is gradually increasing to age 67 by 2028 and 68 by 2046. 

The state pension accounts for half of all benefits paid out by the government. 


Triple lock 

The state pension increases each April in line with whichever of three measures is highest:

Inflation, as measured by the CPI in September of the previous year, is used to calculate cost-of-living adjustments for Social Security benefits. 

The average increase in wages across the UK 

Or 2.5%

The triple lock was introduced by the Conservative/Liberal Democrat coalition government in 2010 and was designed to protect the value of pensions by ensuring that they rise in line with prices or earnings, whichever is higher. 

The aim of the state pension is to ensure that its value does not fall behind either the cost of living or the working population's income. 

The triple lock was suspended during the pandemic, but it has since been restored. 


Financial help 

Pension Credit provides income support for people aged 65 or over who are not eligible for the basic state pension. 

The state pension will increase by 10.1% from April, as it does every year. 

If you receive Pension Credit, you may be eligible to receive additional financial support from the government. This could include a reduction in council tax or help with your heating costs through the Warm Home Discount Scheme. 

People born on or before 26 September 1956 are also eligible for the annual Winter Fuel Payment.


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