New Budget Announced

Mar 4, 2021
Will the new Budget affect your pension benefits?

There were very few measures in the Budget announced on 3 March 2021 which directly impact pension schemes and their members.

However, the Chancellor did announce a freeze on the amount of pension savings that you can build up before you pay extra tax. This is known as the Lifetime Allowance.

The Budget states that the Lifetime Allowance will stay at its current level of £1,073,100 until April 2026.

This is most likely to affect those with relatively high levels of pensionable pay and long periods of service in their pension schemes. However, it does not affect pensioners who have already taken their benefits.

The current limit of £1,073,100 is equivalent to the following benefits being paid when you retire:

  • An annual pension of £53,655, if no cash lump sum is taken; or
  • A maximum cash lump sum of £268,275 and an annual pension of £40,241.25

So, for example, depending on the amount of pension and cash lump sum you choose to take when you retire, this means that you could exceed the Lifetime Allowance if you:

  • retire at the normal Pension Age from a typical section of the Railways Pension Scheme; and
  • have a Final Pensionable Pay of £85,000; and
  • have forty years’ service in the Scheme.

Members with less service but higher levels of pensionable pay could also be affected, as could those on lower salaries and with less service but who have additional pension savings in BRASS, AVC Extra and/or the IWDC Section. 

Because the Lifetime Allowance is being frozen for five years, your pension savings may increase during this time whereas the allowance itself will not.  This means that more members will be affected by the Lifetime Allowance as time goes on.

For instance, going back to the previous example, a member earning £75,000 today might have a Final Pensionable Pay of £85,000 in five years’ time and, depending on their pensionable service in the Scheme, could also find themselves affected by the Lifetime Allowance.

A detailed guide on what the Lifetime Allowance is and how it might impact you can be found here.

This guide also explains how you can check your own pension savings against the Lifetime Allowance using the information provided to you in your Annual Benefit Statement and/or your annual Statutory Money Purchase Illustration.