What To Do About The Allowance Changes Now?

What To Do About The Allowance Changes Now?
Underwater by Andy Deitsch. Why?

The Lifetime Allowance could be on the rise and the Money Purchase Annual Allowance could be slashed, but until the Finance Bill becomes law, it could all change again.

Discover What You Can Do About Your Allowance Before It’s Too Late

At Last, It’s Good News For The Lifetime Allowance

The Lifetime Allowance is on course to increase in April 2018 for the first time in seven years, as it starts being linked to inflation.

The Consumer Prices Index rose to a five year high of 3 per cent in September 2017, indicating the rise should see an increase in the amount you're able to squirrel away for your retirement with the benefit of tax relief.

The Lifetime Allowance represents the maximum amount of money you can save in your pension pot - and benefit from tax relief at your marginal rate - before incurring an additional tax charge of up to 55 per cent.

The Lifetime Allowance has suffered a rollercoaster of a ride in recent times.

After rising steadily from £1.5m in 2006 to £1.8m in 2010, the Lifetime Allowance has been subsequently reduced in stages to £1m over the last seven years.

A rise of 3 per cent in 2018, equivalent to £30,000, will be the first increase in years.

Despite the fact that HM Treasury confirmed its decision to press ahead with an increase in the Lifetime Allowance in line with inflation, there are quite a few predictions across the pensions industry that it’ll go down from £1m by April 2018.

It’s largely due to the fact the Chancellor may well take a close look at the tax privileges of pensions in his forthcoming Budget. 

Pensions have often provided rich pickings for the Government, particularly when it comes to the various allowance entitlements.

It’s Not Good News For The Money Purchase Annual Allowance

You can normally get tax relief on pension contributions of up to £40,000 a year, or 100 per cent of your taxable salary.  This is known as your Annual Allowance. 

However, if you start to draw income from a defined contribution pension, the amount you can pay into a pension and still get tax relief reduces.  This is known as the Money Purchase Annual Allowance.  You can find more about this allowance on the Money Advice Service website.

The Government had planned to slash this allowance from £10,000 to £4,000, but it was shelved ahead of the election earlier this year. 

But once the Conservatives were re-elected, it was re-introduced to the Finance Bill.  And rather unfairly, it’s been proposed to backdate this reduction to April 2017.

Interestingly, you might be able to do something about this, if you're quick!

Three Things To Do About Your Allowance


Following the Finance Bill 2017-19 passing Second Reading on Tuesday 12 September 2017, MPs are required to consider the Bill in both a Committee of the whole House and a Public Bill Committee. 

The Committee of the whole House considered Clauses 5, 15 and 25 and any new Clauses or Schedules related to them on Wednesday 11 October 2017.  It reported the Bill with no amendment.  The remainder of the Bill will be examined in a Public Bill Committee. 

Here’s the Finance Bill, all 674 pages of it!  If you’d like to have your say on the Finance Bill, you may only have a few days left!


In the event you’re unable to have any significant influence over the Finance Bill, a far more effective thing for you to do is to urgently review your pension. 

On the basis the Chancellor is unlikely to ‘giveaway’ any additional tax breaks, if changes are to be made in his Budget in November 2017, chances are the benefits could be reduced or allowances cut even further.

If you’re considering a pension contribution in the coming year and you have room within your allowance, it might be worth bringing it forward now.


If you’ve ‘maxed out’ your allowance, it's not necessarily right to assume that’s it. 

In a detailed article in Money Marketing, Lisa Webster provides a number reasons why it might be in your interest to breach the Lifetime Allowance.

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