The decision to reduce the pension lifetime allowance (LTA) to £1m has been slammed as “unfair, unnecessary and unwise.”
Malcolm McLean, senior consultant, Barnett Waddingham said although a million pounds still appears to be and is a very large sum of money, for a defined contribution pension pot it actually only produces an annual pension of little more than £27,000.
He said: “In many respects the concept of having a lifetime limit is outdated and unnecessary, now that the annual allowance has been reduced to £40,000 and is the effective controlling mechanism for limiting tax relief on pension saving.
“The existence of the lifetime allowance and the regular monitoring against it overly complicates pension saving at a time when strenuous efforts are being made through automatic enrolment and other measures to encourage saving into a private pension.
“In my view the lifetime allowance is superfluous and unfair in that it not only restricts the level of tax relief that can be given but also imposes a 55 per cent surcharge on those who perhaps through prudent management of their money and by securing good investment returns have unwittingly exceeded the limit.”
Some criticism was offset, however, with the move to index the rate from 2018, which will ensure if the rate is now tweaked again that the limit at least keeps pace with inflation.
Greg Kingston, head of marketing and proposition at Suffolk Life, said advisers will need to review all their clients whose pension savings could approach the new, lower pension lifetime allowance of £1m.
He said today’s Budget will make for a particularly testing time for those clients who are over 55 and have to also understand the new pension income options and, in particular, the new taxation regime of pension assets on death.
Mr Kingston said: “It will make for a very busy time, particularly if advisers also have to respond to a new set of client queries on whether or not they should cash in their annuities. It is said every year but remains true: the need for advice has never been greater.”