Moving pension goalposts was one of the latest proposed government strategies, which will affect the retirement plans of millions of people across the UK. Although announced during Chancellor Philip Hammond’s Autumn Statement last year, it wasn’t immediately apparent.
Amidst pressure to scrap this governmental plan, the rule was given the go-ahead and will have effect on and after April 6th 2017. This will change how you think about your finances, both short and long term.
Money Purchase Annual Allowance
The big change that will be seen is to the Money Purchase Annual Allowance, which will be reduced from £10,000 to £4,000 a year. People older than 50 years old will be affected, should they desire to keep working and contributing towards their pension.
Changes in lifestyle in modern times have resulted in older people continuing a working life or restarting their careers, causing them to require to withdraw from their pension but continue saving towards it.
Workers that earn more than £40,000 a year are at risk of receiving big tax bills should they spend even £1 of their pensions and subsequently continuing to save 10 pence of their salary. People caring for older relatives would be at a disadvantage.
Cutting down work hours or placing a career on hold won’t be as easy as before, as dipping into pensions will be penalised. This governmental proposal might oversee the needs of the individuals, as some people require to withdraw from their pensions and continue working, later replenishing it.
The past years have seen cuts and changes to lifetime and annual pension contributions, a factor that seemingly continues this year. In an economy in which monetary security seems further and further away, these changes to how people can withdraw money from their pensions can have bigger repercussions than expected.
Both short and long term, this plan can result in a potentially younger generation unable to take care of their elderly parents. In addition, any pressing need of funds, such as for a medical treatment, could be penalised.