More clarity is needed from the government on the recent changes to the lifetime allowance announced in this year’s Budget, according to Rowanmoor Group’s head of technical services.
Speaking to FTAdviser, Robert Graves said it is hard to know what a person is allowed to build up because of the constant changes to the rules.
He argued that more guidance is required from the government on what their longer term policy is, adding it would “be good to have clear pensions policy as to the direction of travel”.
“I think it would be really nice to understand what the government’s policy really is in terms of pension funding, because obviously when the whole new regime started we got up to a lifetime allowance of £1.8m but it’s been brought back down again.”
Mr Graves called on the government to answer whether this is just a temporary reduction for austerity measures. He noted that under the current system whereby lifetime allowance is linked to consumer price index, Rowanmoor had done some calculations which suggested it was going to take another 40 years to get back up to £1.25m, but wages would most likely being going up faster.
He added that if the government were to link pension policy with national average earnings so that anybody in retirement can have a tax advantageous pension pot, that would be understandable, but at present there is no coherent policy as to what is a reasonable amount.
Martin Tilley, director of technical services at Dentons Pensions Management, agreed that the constant political meddling does nothing to build confidence in pensions, instead becoming and active discouragement to long term planning.
However, he conceded that present policy is coherent, albeit with a gradual downward trajectory.
“Although there is indexation included to increase the new £1m limit from 2018 using CPI, this is most likely to underperform wage inflation over a reasonable period and thus the pension as a percentage of earnings able to be saved for tax efficiently will gradually reduce.
“However, the indexation is a welcome sign of things going forward. The only other time we had a degree of forward certainty was 2006 when the LTA was legislated to increase from £1.5m to £1.8m over a five year period.”
David Trenner, technical director at Intelligent Pensions, argued that the reduction in LTA will hit the likes of doctors hard, as many will have accrued a pension of £50,000 per annum plus a lump sum of £150,000 which equate to 115 per cent of the post 2016 LTA; so they will face huge tax charges.
“Steve Webb has said that with a sensible annual allowance we no longer need a lifetime allowance. This is true, but between 2006 and 2011 people were allowed to pay more than £1m into pensions and they could still be in the system for many years.”