Hammond’s new pension trap – and how to avoid it

The Autumn Statement included a nasty sting for over-55s who want flexible access to their pension cash, warns Sam Brodbeck

The carefully laid plans of hundreds of thousands of middleaged savers have been derailed by the closure of a loophole that had previously allowed flexibility in pension planning. In one of the few announcements on pensions in the statement Chancellor Philip Hammond unveiled a proposal that drastically cut the amount that savers can invest in a pension once they have already made a withdrawal from their pot.

The move undermines the pension freedoms announced in 2014 and implemented last year, limiting the choices of thousands of over-55s who have taken cash from their pensions.

Currently, taking a payment lowers the “annual allowance” – the amount you can save into a pension in a year – from £40,000 to £10,000. This reduced allowance was introduced along with the freedoms to prevent abuse, or “recycling”, by which savers might be tempted to draw money out of their pension only to reinvest it with the objective of obtaining extra tax relief.

But now the Government will slash the allowance further, from £10,000 to just £4,000, from April 2017. Mr Hammond said the move would close the loophole and stamp out “inappropriate double tax relief ”. He provided no evidence that abuse was happening on any scale, however.

For many it is now too late – plans to boost their pension savings over a decade or more will have to be redrawn. This is because many savers, having reached 55, for example, chose to take some money out of their pension to meet a specific cost – such

Anyone who has not yet touched their pension has nothing to worry about: they still have £40,000 of annual allowance. ( Very high earners – with incomes of more than £150,000 – may have less than this limit. Visit Telegraph Money’s dedicated webpage on the “taper” to see if you could be affected.)

The main group at risk from the Chancellor’s announcement are those who have taken advantage of the pension freedoms, a series of reforms introduced in April 2015 that mean anyone who is over 55 and has a “defined contribution” pension has greater control over how to spend their savings.

If you are one of the roughly half a million who have used the new freedoms – crucially, this is not everyone who has simply accessed their pot – your allowance is currently £10,000 and you should consider bringing forward any contributions before April.

However, explained Claire Trott of Technical Connection, a tax specialist, even after next April there are four main ways to use your pot without triggering the lower allowance.

Buying an annuity, an insurance contract that pays you for life or a

Victoria Cordara, 39, is one of thousands of first-time buyers locked out of the housing market. The Autumn Statement offered some hope for renters – but little meaningful change. Meanwhile there was no reprieve for buy-to-let landlords.