Advisers wish for Budget reform of lifetime allowance

Advisers wish for Budget reform of lifetime allowance

Scrapping the lifetime allowance (LTA) tops advisers wish lists in this week’s Budget.

A survey from self-invested personal pension (Sipp) provider Momentum Pensions, which polled 102 advisers specialising in pensions planning, revealed 60 per cent of the respondents believe the LTA should be abolished to reflect the fact people's funds are getting bigger

This is happening mainly because of defined benefit (DB) pension scheme transfer values which are much higher than they once were.

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The LTA is the maximum amount of money a saver can put in their pension pot - and benefit from tax relief at their marginal rate - before incurring an additional tax charge of up to 55 per cent.

From 2018 the LTA will be pegged to consumer prices index inflation, meaning it will increase by £30,000 from April 2018 to £1.03m.

According to analysis from Royal London, there is a six out of 10 probability of a cut in LTA in the Budget.

John McCreadie, head of sales UK at Momentum Pensions, said “abolishing the lifetime allowance would be popular with advisers but seems improbable”.

He said: “The Budget is expected to focus on the housing market and measures to attract younger voters so fundamental changes to pensions appear unlikely.”

This has “the upside of being helpful for developing member understanding and giving a much-needed period of stability in the industry,” he added.

But he said there was always the possibility of a surprise on the day of the Budget itself.

The volume of DB transfers has been soaring, as savers seek to take advantage of sky-high transfer values and to move their nest eggs into defined contribution schemes in order to access them via the pension freedom rules.

The Momentum research also showed around a third of advisers (32 per cent) would support moves to means-test retirement benefits, such as the winter fuel allowance, if the Chancellor needs to raise money.

Around 17 per cent would also back ending the triple lock on the state pension, which the Conservatives proposed before this year's snap general election where they lost their majority.

But changes in the current tax relief system are unpopular – only 3 per cent of respondents would support the introduction of a standardised 30 per cent tax relief on contributions.

Paul Gibson, managing director of Granite Financial Planning, the LTA “is hugely unfair” and would be on top of the list to be axed.

He said: “It penalises investment performance and is inherently unfair on those with money purchase benefits who are at a huge disadvantage to those in final salary schemes.

“A £1m money purchase pension scheme will not buy an annuity remotely comparable with the £50,000 a final salary scheme can provide.

“There is a limit on how much can be paid into a pension on an annual basis so there should not also be a limit on what can be taken out. I am seeing clients in their 40s who are being caught by the limit which seems fundamentally wrong given they could have another 20 years of working.”