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Pensions minister challenged on lifetime allowance

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Pensions Minister Richard Harrington has faced calls from advisers to abolish the lifetime allowance.

Speaking at Money Marketing In Focus this morning, Harrington could not ignore advisers’ frustration with the allowance as audience members called it out as being a “disgrace”.

Addressing Harrington, Yellowtail Financial Planning chief executive Dennis Hall said:  “One of the areas that is very complicated is that you apply the same rules to DB and DC which leads to a very fair outcome for DB people, which you are a beneficiary, but unfair to DC, namely the annual allowances and lifetime allowance.”

He said: “When are you going to recognise that those are completely different from each other and need a completely different set of rules?”

Harrington asked Hall what he would do if he was in government.

Hall responded: “I would just remove the lifetime allowance. Because I get penalised for having too big of a fund and it doesn’t match the benefits that you get.”

The comment drew a round of applause from the adviser delegates.

Harrington later said he had “sensed from the room” advisers’ views on the conflict between encouraging pension saving but imposing a cap on the amount people can save into a pension.

Another adviser posted on the event app: “Lifetime allowance will not pay for a nursing home. Needs to be stopped.”

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Comments

There are 17 comments at the moment, we would love to hear your opinion too.

  1. I agree the same LTA for both DB and DC Schemes is ludicrous, especially the factor used for the DB calculation (30 times would be better!).
    However, my view is that this won’t be possible, simply because folks will then use pension schemes to shelter assets from IHT and not to provide retirement benefits.

  2. Yes, scrap it. It was passable when it was an allowance that crept up each year (or stayed the same) but when it started reducing and with that the complexity of protecting existing savers, it has become horrendous for people running pensions and stupidly complex to explain to savers. With the far lower Annual Allowance, there is no need for the Lifetime Allowance other than to control the amount of *tax-free* cash available and the legislation has messed up that simplicity good and proper.

  3. Yet to meet anyone, anywhere that thinks the lifetime allowance is a good idea. DB & DC schemes need to be completely separated – as they were before A-Day, when DB members were restricted to an annual contribution of 15% pensionable pay. Frankly I dont know what the big problem was with the earnings cap and age related % contributions… easy to grasp and allows “last minute funding” which many may need to do.

  4. Just another example of government not understanding the issue. Of course there shouldn’t be an earning cap. It would be sensible to to offer tax relief on contributions of over £100,000 per annum. But why not let people have as big a fund as they want, it will be taxed as earned income. Pensions are there for when you need them not for when you want them. They are not there just because the roof has blown off the gen house, the problem is the treasury wants to tax are money up to 3 0r 4 times in our lifetime.

  5. In addition to the DB/DC issue, we have an annual allowance so why do we need a lifetime allowance? In some companies, very senior staff have reached their LTA so do not contribute to the pension. As they do not contribute to the pension they don’t see the importance of the pension scheme so it is not promoted to the company so although they have to offer one to their staff because of AE, they do not offer good contribution rates, promote the scheme etc. For the company pension to be a key benefit, senior staff need to be investing in it. We can restrict their contributions by the AA, so lets scrap the LTA.

  6. Contrarian maybe, but I’m of the view that it’s a really poor use of public money to give anyone a tax break in building up a pension pot, DB or DC, of more than £1m. They’re not exactly going to be on the breadline in retirement, nor will they require state benefits, so if they want to and can afford to build up a bigger retirement income they can do it without a tax break from the rest of us, thanks very much!

  7. So Steve Laird are you going to remove the tax breaks for doctors, nurses, teachers etc ie tax them on the amount their employer pays into their final salary scheme then??

  8. Why not simply apply the LTA cap to IHT protected benefits on pensions, and remove the accrual ceiling? Obviously tax relief costs will be a big focus, but that is what the Annual Allowance is for. Ultimately a limit of £1mn on the amount that can be passed in pension benefits free of IHT, and removing the ceiling acts to remove disincentives to actually use the money for it’s intended purpose (i.e. income in retirement) will mean that a) tax relief on contributions will be managed via the annual allowance as is the case now, b) savers are encouraged to contribute to pensions throughout their lifetimes, c) tax receipts will rise as people take and spend more during their lifetime due to the maximum cap, d) removes the massively over complicated protections schemes currently in place making it clear for the layman to understand. JMHO of course

  9. But does Harrington intend asking the Treasury to consider abolishing the LTA or at least raising it and restoring its link with inflation? Did anyone ask him specifically if he’s prepared to do this? The fact that this article makes no mention of any such undertaking having been given (or even rejected) rather suggests that nobody did. Even if he were to agree to put such proposals to the Treasury, it would probably take little if any notice. The position of Pensions Minister doesn’t actually mean anything much anyway. It’s just a PR role, a bit of window dressing. What changes did Steve Webb or Ros Altmann put forward and persuade the Treasury to enact? None whatsoever as far as I’m aware.

  10. If the annual allowance is to be just £4,000 per annum and this is increased at 2.5% per annum (the current rate which the FCA says should be used for a mid point projection) and the current mid point growth rate then I reckon putting in the maximum each year would take over 45 years to reach the current LA.

    So it looks like the LA is being strangled by stealth.

  11. The annual allowance reduction for people who access pension benefits early is also totally against the principals of pension accrual . As is well known later funding is common and premiums can be large . If it was a good idea to access pension benefits in excess of tfc for a valid reason then why should these people be penalised ? Recycling of lump sums should always be a no no and have been monitored before . Valid payment of premiums to secure retirement shouldn’t be seen as wrong . Flexible access ??

  12. Why no mention of the Pensions Apartheid between private and public pensions? The fact that a public employee can end up getting a pension in excess of their annual salary.
    It is instructive to read this:

    http://www.telegraph.co.uk/pensions-retirement/financial-planning/pensions-apartheid-how-public-and-private-systems-compare/

    As it puts the matter firmly in context.

    It is grotesque that we as taxpayers are just not allowed to build up a pension to anything near equivalent to a public employee – who also has their salary paid by us taxpayers. This is further compounded by the contribution these public pensions make to our huge national debt pile – which again we taxpayers have to ameliorate through higher taxes and austerity.
    Perhaps my antipathy to politicians and bureaucrats might just become a little clearer

  13. Why not make it the same threshold as the Additional NRB – £2m
    I suggested closing new entrants into all of the Govt and Local Govt DB Schemes, WE cannot afford it, and do what virtually every Company in the UK has had to do, convert them to DC pensions. The understanding of Govt and especially the Treasury, woul dmiraculously improve overnight.
    It used to be that employees in Govt had Gilt edged benefits becaus they were not paid a ‘commercial’ wage. Now it seems that the mantra is “oh, we have to pay them £250,999.99 because that is the ‘going commercial rate’. Cake and eat it or what?!!

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