Industry slams lifetime pension allowance cut

The decision to cut the lifetime allowance from £1.25m to £1m, announced in the chancellor’s 2015 Budget Speech, has drawn stinging criticism from providers and advisers.

Spokesmen from Aegon UK, Scottish Widows and Intelligent Pensions expressed concern after the Budget, in which George Osborne said the gross cost of tax relief had risen throughout the current parliament, reaching almost £4bn. He said cutting the allowance would save approximately £600m a year.

He claimed that the decison would affect fewer than 4 per cent of pension savers and the lifetime allowance would be inflation-indexed from 2018.

According to the 124-page Budget 2015 document, transitional protection for pension rights already more than £1m would be introduced to ensure the change was not retrospective.

But the decision has attracted intense industry criticism, with Andrew Tully, pension technical director for MGM Advantage, suggesting forty-somethings with pots worth more than £423,000 should stop pension saving.

Steven Cameron, regulatory strategy director for Aegon UK, said: “How disappointing to see the government once again taking a short-term approach to pension tax by cutting the lifetime allowance.

“A £1m pension pot may seem huge, but with improvements in health and life expectancy, people who retire at 60 may need to use their pension income to cover their costs for 30 years or more.”

There was also criticism over the timing of the announcement. Elissa Bayer, senior investment director for Investec Wealth and Investment, claimed the reduction came too soon after the industry absorbed the previous cut.

Ian Naismith, pensions specialist for Scottish Widows, agreed, saying this was the third cut in four years. “Such frequent changes erode confidence that those who save prudently will gain the full benefit of planning for their retirement,” he said.

The move for indexation was welcome, according to Graham Vidler, director of external affairs for the National Association of Pension Funds. He said: “The chancellor’s commitment to index-link the lifetime allowance from 2018 is welcome. But the question is, what will it be in three years’ time?”

Adviser view

David Trenner, technical director for Glasgow-based Intelligent Pensions, said: “This is the eighth change in nine years and the lifetime allowance is now just 66 per cent of its 2006 figure, which makes planning difficult.

“It penalises good investment performance and is particularly hard on folk leaving DB schemes, as £1m buys about £25,000, but £50,000 in DB equates to £1m.”