The lifetime allowance should be scrapped as it penalises disciplined savers, the chief executive of PensionBee has said.
Speaking at FTAdviser’s Later Life Summit, Romi Savova said there should instead be a focus on the annual allowance.
“The challenge with the lifetime allowance is that it really penalises disciplined savers and so if you do proactively contribute to your pension, the likelihood is that you will hit your lifetime allowance sometime in your 50s,” she said.
Savova said PensionBee is seeing many people contributing beyond their 50s and 60s as their working lives continue for much longer.
“We would be in favour of an elimination of the lifetime allowance and a focus on the annual allowance instead, where we actually see very few people contributing up to the annual allowance as a whole amongst the country.”
She added that she would also be in favour of the removal of the annual allowance taper.
“I don’t think that savers should be penalised for putting money into their pensions.”
Savova said the taper has caused problems in the past as it is difficult to understand and adds to the confusion and complexity surrounding pensions.
“For the most part, this discourages people from saving, when many of them should be saving,” she said.
The lifetime allowance is a limit on the value of payouts from pension schemes – whether lump sums or retirement income – that can be made without triggering an extra tax charge.
The pensions lifetime allowance will remain at its current level of £1,073,100 until April 2026, instead of increasing in line with the consumer price index.
Savova said PensionBee is seeing a reduction in withdrawals as a result of high inflation and rising interest rates.
“People are seeing prices go up and are aware they need to make their funds stretch,” she said.
“Plans are taking a bit of a backseat as the macro economic situation unfolds.”
When it comes to ensuring a pension is as inflation-proofed as possible, Savova recommended going back to the basics.
“First and foremost, it is important to understand where customers’ pensions are.
“Ideally a pension would be in one place, benefitting from any type of fee discounts.”
She said it is also important to ensure that the asset allocation and charge structure is appropriate for the clients’ objectives.
“A client should have a really good plan as to what their money will be used for, and to ensure it is sufficiently invested to let them benefit from long term growth.”