July Budget 2015: Five ways your pension could change after today’s budget

Substantial changes to the UK's pension rules are expected to be introduced in today's Budget.

 

 

The government has generally been loath to take away retirement perks in previous years, but this is about to change as chancellor George Osborne moves forward with his £12bn worth of spending cuts. Pensions are like a goldmine when it comes to opportunities for the government to save.

 

Here's how you could be affected once the changes are put into action: 

What was previously considered a generous perk for high earners is expected to come to an end today. Those earning more than £150,000, which marks the start of the 45 per cent tax bracket, face a cut in pension tax relief.

 

Currently, the highest tax-free amount these earners can contribute to their pensions each year is £40,000, but this is expected to be brought down to £10,000 via a sliding scale according to the amount earned. The £10,000 figure will be hit once a person has a salary of £210,000, beyond which point the relief will decline no further. 

 

This change affects everyone, although most of all high-earners. The maximum you can place in your pension tax-free over your lifetime is expected to be reduced to £1m – down from the current level of £1.25m. 

Some experts believe the government might introduce a 30 per cent flat rate of pension tax-relief, helping to make the system easier to understand and operate. 

 

Currently, the system is more in favour of high earners, as the pension rebate received increases according to the tax bracket we fall into. Tax rebate varies from 20 per cent among the lowest tax-bracket earners, to 45 per cent among the highest earners. 

People are able to access a maximum of 25 per cent of their pension pots as a cash-free lump sum aged 55, ahead of the remainder becoming available at the normal retirement age of 65. It is thought Osborne could rule out any tax relief for that first chunk. 

 

Savings experts argue taking the lump sum early can result in a financial loss for the individual, however. 

At the moment, employees can be granted National Insurance relief or salary sacrifice, where the company they work for pays part of their salary into a pension via a contribution scheme. It is thought that this offering could be ditched during today's speech.