The chancellor needs to make the pensions tax system fairer and easy to understand, research conducted by Hargreaves Lansdown has found.
According to the Bristol-based firm, which surveyed 2,300 of its investors, the chancellor’s plans for tax reform, announced in the summer Budget, could enjoy widespread support, provided they were seen to be fair to all segments of society.
Highest earners were likely to accept a move to a flat-rate retirement reward system, even if set at a rate below current tax reliefs, while the abolition of the lifetime allowance would be an essential trade-off for any tax relief reform.
The research found that the majority of investors wanted the government to replace tax relief with a flat-rate ‘retirement reward’ of 33 per cent, which could be presented along the lines of ‘buy two, get one free’, abolish the lifetime allowance, and get rid of the annual allowance taper for higher earners.
In tandem with tapering the annual allowance, Revenue & Customs also intends, from 6 April 2016, to reduce the LTA for pension fund size from its current level of £1.25m to £1m.
From April 2018, the LTA will increase in line with inflation as measured by the consumer price index.
Adviser view
Michael Brooke, financial planner for Cheshire-based Clarion Wealth Planning, said: “Every incremental cut to the LTA has brought more and more people within its ambit.
“Individuals with rights in defined benefit schemes need to be particularly careful, because an accrued entitlement to a £50,000 final salary pension would be valued at £1m for the purposes of the LTA.”
