Chancellor Philip Hammond is set to announce the Budget tomorrow with a number of topics potentially on the agenda. MoneyAge investigates.

Changes around the annual allowance could be witnessed. Prudential head of technical Les Cameron said “we could see a reduction in the standard annual allowance from £40,000”.

“The Chancellor could bring more people into scope of the tapered annual allowance. The income limits for that are currently £150,000 and £110,000 and would be straightforward to reduce.

"The lifetime allowance is about to increase from next year and while I don’t think there will be a reduction it’s possible the lifetime allowance increase could be deferred or cancelled completely.”

In the defined benefit world, it has been mooted that the valuation basis for defined benefit schemes could be changed for annual and lifetime allowance purposes. To value defined benefit schemes for lifetime allowance purposes the pension is multiplied by a factor of 20. For the annual allowance, the factor is 16 times. These factors were determined in 2006 and 2010 respectively.

Lloyds Bank Commercial Banking head of economics Adam Chester said the budget “will have to strike a difficult balance”.

“Improvements to the public finances had given some room to ease policy, but that will be squeezed when the Office for Budget Responsibility revises down its growth forecasts on Wednesday.

“The commitment to reducing the so-called structural budget deficit to below two per cent of national income by 2020-21, gives us a framework to assess how much room there is for any giveaways. At the March Budget, the structural deficit was forecast to undershoot the two per cent target by £26bn. It’s now set to fall £6bn to £8bn short of the March forecast, mainly due to stronger-than-expected tax receipts. However, the OBR warned it will dial down its productivity forecasts, and we estimate a 0.4 per cent downward revision would increase the structural budget deficit by around £15 to £20bn.

“On top of this, new funds are being sought for areas including Northern Ireland, public sector pay and the NHS, which would likely mean breaching the two per cent cap. However, we suspect any available wiggle room would be used to fund a modest fiscal giveaway in order to keep borrowing and debt projections on track.”

Tax relief is also an area being heavily discussed in the media. According to Cameron, however, the tax-free lump sum “will not be removed”.

“It’s an excellent incentive to save and is one of the things the general public like and understand about pensions.

“Changes to pension tax relief seem inevitable in future but I don’t believe they will be addressed in this Budget. Making changes will not be simple and I don’t think there will be enough parliamentary time available to see them through to legislation. Tax is likely to be raised from the pension system but this will probably be through changes to the annual and lifetime allowances.”

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