The Government has confirmed that the lifetime allowance 2018/19 will rise in line with inflation, but savers have been offered little else in the Autumn Budget.
The lifetime allowance will increase from £1m to £1,030,000 to match CPI from 2018/19. Though the maximum amount the can be saved each year into a Junior Isa or Child Trust Fund will also be uprated in line with CPI to reach £4,260, the annual Isa subscription limit will stay at £20,000
The savings income band subject to a zero per cent rate will also be held at £5,000.
However, as Retirement Advantage technical director Andrew Tully notes, there are some scenarios in which the small increase in lifetime allowance could actually generate a tax saving of more than £16,000 for clients.
For example, if a client has a £1.1m pension pot with no lifetime allowance protection and fully crystalises their benefits on 1 February next year, the excess of £100,000 would be taxed at 55 per cent if taken as a lump sum.
However, if the client does not take their benefits until the start of the following tax year, when the lifetime allowance has risen to £1.03m, the tax on the excess is only £38,500, £16,500 saving.
Tully says: “While the increase to the lifetime allowance seems small, it still provides planning opportunities. Delaying taking some or all benefits until after April may help advisers reduce or eliminate the tax charge which faces people with larger pension pots.”
A recent poll of 102 pension specialist advisers polled by Sipp provider Momentum Pensions found that six in ten advisers wanted to see the lifetime allowance scrapped in the Autumn Budget.
The poll pointed to an increasing dissatisfaction amongst IFAs that the 2016/17 £1m limit discourages saving. While the allowance will rise in line with CPI inflation from April 2018, some argue this does not go far enough as large defined contribution pots are accumulated through transfers from defined benefit schemes.
However, just 3 per cent of the 102 pension specialist advisers said they would support a flat rate of pension tax relief at 30 per cent.