The Fixer: Pension changes explained

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Dear Fixer,
I understand that the Chancellor made several changes to pension saving rules in the Autumn Statement. However, I am confused as to how they affect me.

I am 59 years old and have been a member of my work pension scheme for about 30 years now.

About five years ago, I realised that I needed to top up my pension savings if my wife and I were to continue having a reasonable standard of living after I retired. I therefore started paying into a private pension scheme designed to top up the income I get from my work scheme.

Now, however, I am concerned that the government's recent changes will mean that I end up being taxed on this extra pension fund.

Can you explain what has happened and put my mind at rest about whether or not I will be affected? Thank you.

B Hewitt, Leeds

Dear Mr Hewitt,

The pension changes introduced by the government in the Autumn Statement mean that the lifetime allowance - or the total amount you can receive pension tax breaks on throughout your life - is falling from £1.5m to £1.25m, while the annual allowance - or amount you can pay in each year - is dropping from £50,000 to £40,000.

Based on the information you have given me about your pension savings, the reduction in the annual allowance will not affect you.

However, the fact that you are now trying to increase your retirement income by making larger payments means that you do risk being affected by the planned reduction to the annual allowance.

There are steps you can take to prevent your pension savings being hit by tax charges - as long as you act before the changes come into effect in the 2014-2015 tax year.

To work out which steps to take, however, you need to take advice specific to your situation from a qualified independent financial adviser.

If you do not have an adviser already, I would therefore recommend finding one, either by asking friends for the name of a trusted firm or by looking up a pension expert via adviser network Unbiased.

The Fixer

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