2008 Budget statement on Pensions

Lifetime and Annual Allowance

The Lifetime allowance which sets a limit on the level of pension savings which can accrue free of any tax implications was initially set at £1.5m in April 2006, rising annually to £1.8m in 2010/11.

The chancellor announcement in the Budget that he intends to freeze the allowance at £1.8m at least until April 2016.

This measure will mean that potentially more people will have to pay the lifetime allowance charge (55% on the excess over the lifetime allowance).

It will also affect those with very small pension savings, as the limit for trivial commutation is set at 1% of the lifetime allowance. This means that unless the Government changes the link, this will be frozen at £18,000.

The Annual Allowance is also being frozen from 2011 to 2016 at £255,000. This means that any contribution paid above this limit in any ‘pension input period' will be subject to a 40% tax charge.