A growing number of industry figures haved called for the lifetime allowance to be scrapped as part of HM Treasury’s review of pension tax relief.
New research by AJ Bell showed that the vast majority – 82 per cent – think the lifetime allowance should be done away with.
Advisers said it should be scrapped because it penalises investment growth, is unnecessary in conjunction with an annual allowance, and because the rules around pensions are too complex.
Gareth James, head of technical resources at AJ Bell, said: “The lifetime allowance for money-purchase pensions now seems like one of the most unnecessary features of our pension system.
“Further complication is round the corner early next year when the lifetime allowance will be reduced to £1m, but there will be no mechanism for people to apply for protection at that level until some unknown future date.”
Other organisations that think the lifetime allowance should be scrapped include the Investment Association, the Association of Member-Directed Pension Schemes, the Association of British Insurers, Towers Watson, Broadstone and Fidelity.
In response, the Investment Association said: “We believe the fundamental way of allowing individuals to take greater responsibility within the context of the shift to DC is to remove the lifetime allowance for DC pensions and use the annual allowance as the main cost control lever, lowering it as appropriate.
“This would make it clear that individuals who are saving in a DC pension would be unambiguously better off – more money going in would result in a higher income in retirement.”
John Ball, managing director of Towers Watson’s retirement practice in EMEA, said: “We agree that the current pension taxation regime does need simplification, but we believe that this is both possible and practical within the existing taxation system.
“Removing the annual allowance control from DB pensions and the lifetime allowance from DC pensions would be genuinely deregulatory – a very much welcomed simplification for consumers.”
The lifetime allowance was introduced in 2006 at £1.5m.
It was increased every year until 2010, and has since been cut to £1.25m.
In his March 2015 Budget, chancellor of the Exchequer George Osborne announced that from April 2016 it will be reduced to £1m.
Lee Waters, chief executive of Sussex-based Barwells, said: “I do think the lifetime allowance should be scrapped because it inhibits growth and they can manage pension contributions with the annual allowance.”