Autumn Statement 2016: One pension tweak you may have missed

In his Autumn Statement, chancellor Philip Hammond has resisted the opportunity to make further overhauls to the much-tweaked pensions system, for either better or worse.

However there were a few pension-related announcements in this afternoon's Commons speech - relatively modest in comparison with some of the bombshells dropped in recent Budgets.

The main tweak has been made to the amount that can be paid into a pension pot once you have started taking an income from it - known as the money purchase annual allowance - this will be slashed from £10,000 to £4,000 from April.

Steve Webb, director of policy at Royal London, argues the cut "flies in the face of efforts to make retirement more flexible" and makes starting to draw taxable pension cash "even more of a cliff-edge than at present".

Unfair to savers

"We should be trying to make combining work and drawing a pension easier, not harder," he says. "We also need to know what will happen for people who have already drawn taxable cash expecting to be able to go on saving £10,000 per year. Any retrospective change would be totally unfair to savers."

Chris Noon, partner at Hymans Robertson, agrees the move is out of kilter with changing attitudes to the process of retirement.

"The government is clearly trying to stamp out recycling pension savings - whereby people could get a double hit of pensions tax relief by withdrawing money from their pension and then re-investing it," he says.

'Retirement' is no longer a cliff-edge event - it's a process over many years"However this policy, which will save the government just £70 million a year, could be a disincentive to flexible working at a time when we should be doing more to support it given increasing pension savings shortfalls.

"'Retirement' is no longer a cliff-edge event. It's a process over many years."

Richard Parkin, head of pensions policy at Fidelity International says: "Many pension schemes will only allow cash withdrawals in the form of lump sum payments where 25% of withdrawals is tax-free and the rest is taxable income.

"It is commonly used by pension plans that don't want to support full income drawdown, which includes many large company pension schemes and older pension contracts."

He adds: "The problem with this type of withdrawal is that it triggers a reduced limit on what can subsequently be saved into the pension plan. When this limit was £10,000 this didn't affect too many people, but at £4,000 it could really bite.

"While few may be saving £4,000 from their own earnings, the reduced allowance also includes employer contributions which could easily take many over the limit, triggering a significant tax bill."

Other pension news

It was announced in the Autumn Statement that the state pension triple lock will remain in place for the remainder of this parliament, ensuring that pensioners receive an annual increase in income equivalent to whichever is greatest - inflation, the increase in earnings, or 2.5%.

Various pension commentators have argued the triple lock should be scrapped.

There were other pension annoucements, including a consultation on making pension cold-calling illegal. Elsewhere, pensions have been exempted from the clampdown on salary sacrifice schemes.

A relatively low-key Autumn Statement will be welcomed by pension providers, and investorsThe chancellor disappointed many by taking no other action on pension contribution caps.

In particular, many commentators had hoped he would do away with the lifetime allowance (LTA), which caps the amount that can be taken penalty-free from a pension pot at £1 million.

The LTA has been widely criticised as penalising those who invested wisely and saw their pension fund grow over the years. It remains in place for the moment. Nor was there any further announcement on overhauls to the pensions tax relief system.

But a relatively low-key Autumn Statement will be welcomed by pension providers, and investors in need of some sense of continuity and security.

For the latest news and expert analysis on the chancellor's maiden set-piece budget speech and its repercussions, make sure to check out Interactive Investor's Autumn Statement hub.

This article was originally published by our sister magazine Money Observer here

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