Treasury proposals which would enable individuals to meet charges incurred when breaking the new £50,000 tax-privileged pension annual allowance limit through their savings may lead to “short-term raids” on pension funds, LV= warns.
In November the Treasury issued a consultation outlining options which would allow high earners to meet the charge out of their pension benefits, rather than current income.
LV= retirement solutions director John Perks says: “We believe the proposal in its current form contains a number weaknesses and is too complex. Any tax charges from exceeding the AA have always been settled by the individual outside of their pension schemes, and in our view this approach should continue.
“If the proposals are adopted as currently drafted we are concerned that the move to use pension benefits to pay an individual’s personal tax liability may lead to further short-term raids on pension funds and create future issues.”
Under the Government’s draft proposals, individuals would pay the first £2,000 to £6,000 of any annual allowance tax charge from their current income. Pensions law firm Sackers says employers, trustees and scheme members will require “clear guidance” on these parameters before the new regime begins in April.
Associate Eleanor Daplyn says: “Without this there could be chaos in the run-up to the first deadlines for payment of the charge.”