This year the Chancellor's Budget speech took place on 18th March. After the excitement of last year's budget, the Chancellor obviously felt that the pensions industry would need some warnings of any changes this time. Accordingly, the two significant changes for pensions had been heavily trailed already in the press and were, if anything, extensions of existing policies.
By way of reminder, limits on tax efficient pension savings under a pension scheme are set by reference to annual contributions (the annual allowance) and total fund at the time of retirement (the lifetime allowance). The Chancellor chose to leave the annual allowance alone but reduced the lifetime allowance from £1.25m to £1m from 2016. Although the allowance is still a large fund, the amount of money in pension pots is generally quite high and the pension that this amount would buy relatively small. The reduction follows similar previous cuts and it is likely (although this has yet to be mentioned by the Treasury) that those with higher lifetime allowances will be allowed to protect their tax position by making no further contributions and applying for "fixed protection".
The change will be likely to affect those who have been long term savers, particularly in defined benefit schemes. In the decision to leave the annual allowance unchanged, the Chancellor mentioned that any change to this would affect public servants, which alludes to the fact that defined benefit schemes are now most common in the public sector. The same is true for the lifetime allowance, and higher paid public servants with longer service, such as civil servants and doctors, may find themselves affected by this.
Following on from last year's "Freedom and Choice" changes to pensions in the budget, Steve Webb, the Pensions Minister, had suggested that those who had already bought annuities might wish to also cash them in and make use of the new freedoms. This has now been adopted by the Chancellor from 2016.
Those who have an annuity will be able to sell it on, of course with the consent of the provider. It is unclear whether providers would consent but some older annuities have been provided at quite a generous rate, based on now outdated life expectancy calculations, so that annuity providers might even be interested in cashing them in themselves if the rules allow this.
The Chancellor has made it clear that guidance will need to be offered to those considering this option. He has indicated that there will be consultation with the FCA on the same, and it may be that this will operate as part of "Pension Wise", the delivery for the guidance guarantee about to be offered to all defined contribution retirees in relation to the new pension freedoms. There will certainly be a challenge to ensure that this guidance is considered by those considering taking this momentous step.