Is the Pension Lifetime Allowance changing?… again
Anyone that knows me will know that I’m not a fan of the lifetime allowance (LTA). This is essentially the Government telling us all how much we can have in a pension pot, or the equivalent of a pension pot. For the record, the LTA is now £1.25m which to many sounds like a lot of money, which it is – but so what? Sure its generally the richer people in society that are going to breach the LTA, but if you are an advocate of higher taxes for the rich, this is done through income tax, capital gains tax, dividends, stamp duty and so on. In any event, isn’t it in all our interests for us all to encourage as many people as possible to become financial independent and to have no need of State support? By the way a £50,000 pension from an employer like the NHS, Civil Service or Teachers Pension will meet the LTA, so many long-serving professionals are caught with this problem.
Huge tax penalty
The penalty for having more than the lifetime allowance is currently 55%. The LTA was £1.8m just a couple of years ago, now its £1.25m. So anyone that got caught by this change currently has an excess tax charge of £302,500. This has been an allowance that has not only failed to keep pace with inflation, but has been deliberately reduced. The rules as they stand at present punish good investment returns and prudent planning.
Scrapping the Lifetime Allowance?
So this morning’s news that the pensions Minister Steve Webb gave a speech at the Marketforce conference in which he repeated a call for a flat rate of 30% tax relief on pensions and scrapping the lifetime allowance is, in my view very good news. It encourages people to save, which when combined with the new rules being introduced for at retirement options, makes the prospect of an attractive pension system realistic. More importantly, we know that saving for our own future is important and restricting how much the fund is worth seems entirely counter-productive to me. Certainly limit any tax relief on payments into a scheme, but not what the funds can be worth… so please Me Webb, follow through on your words.
Dominic Thomas: Solomons IFA