Will pensions ‘political football’ stay on the pitch?


Will the political football of the pension Lifetime Allowance be allowed to continue beyond the current government?

The removal of the lifetime allowance (LTA) from pensions in the Spring Budget was widely welcomed by most independent financial advisers (IFAs), but recent research has shown that many believe it will not last.

A survey by Standard Life has shown that more than two thirds (69%) of IFAs think that planning around the LTA in the longer term might be uncertain for clients because there are fears it might not remain under a new government.

The recent Budget saw the Chancellor scrap the £1million cap on lifetime savings to pensions, which meant there is now no limit at all on the lifetime allowance and people will qualify for tax relief and exemptions on pension pots of any size.

The reason for it was mainly to enable skilled higher earners such as senior doctors and consultants to work for longer and perhaps also to come out of retirement, whereas previous pension rules meant there was a significant tax disincentive.

However, the Standard Life research found that recent comments from Labour signalling plans to reverse the removal of the LTA have prompted concern among IFAs who fear the ‘political football’ will be booted out of the park.

This increased to 75% among those who have an average client portfolio of more than £200,000, with only 9% of respondents overall stating that they think it would be safe for clients to plan on it being in place in future.

Generally there was much support among IFAs for the Budget measures, as 76% supported the removal of the pensions LTA, with 52% strongly supporting the changes.

In addition, more than nine out of 10 (91%) IFAs were in favour of the increase of the money purchase annual allowance from £4,000 to £10,000, with 69% strongly supporting the changes.

This affects those people who have already accessed their pensions but who have not necessarily stopped working and means they can now pay a significant amount more into their pension each year and still receive tax relief.

A further 86% approved of the increase of the annual pensions allowance from £40,000 to £60,000, while 74% supported the changes to the tapered annual allowance.

This means those who have not accessed their private pension pot are able to subscribe up to £60,000 a year (or 100% of earnings if lower) into it with full tax relief since April 6, 2023 – that’s a £20,000 increase over the previous input allowance.

The threshold at which the tapered allowance kicks in has been increased to £260,000, which clearly only affects those with a higher level of income.

There is concern nationally among advisers whether the removal of the LTA will stick and such uncertainty of course makes longer terms planning more difficult. We believe that it would be very difficult for any new administration to retrospectively introduce a more penal set of rules in the future and more likely targets may be tax relief, contribution allowances, tax-free cash entitlements or in fact, something altogether different such as Inheritance Tax.

If this may affect you, please speak to your adviser or seek professional financial advice before finalising any long-term plans for your pension.