View more on these topics

Editor’s note: The prospects look bleak for pensions taxation

In the face of mounting evidence that reducing pension tax allowances is hurting more savers than expected, financial planners continue to be frustrated in their calls for reform.

Over the past few weeks, more data has washed up as to the impact cuts to the lifetime allowance, annual allowance, money purchase annual allowance and the taper for high earners are really having.

The amount savers have contributed above the annual allowance on pensions has more than tripled in the past year – the first in which the taper came into effect – and advisers are reporting it as one of the top concerns among clients.

Around a million savers have taken flexible payments from their pensions for the first time since the freedoms, putting them at risk of breaching the MPAA should they wish to top up again at a later date.

Money Marketing’s cover story this week: What future for pension tax relief?

A recent poll on the Money Marketing website showed 78 per cent of our readers thought there should not be any annual allowance taper for high earners.

It’s not just financial planners that have been up in arms: complaints from doctors reportedly led health secretary Matt Hancock to recently discuss the possibility of exempting the profession from the lifetime allowance with the Treasury.

Regardless of whether you buy the argument that the allowances are a disincentive to saving, or believe they are a way to ensure high earners do not receive a disproportionate share of tax relief, what is clear is that the allowances – particularly the taper and MPAA – are not well understood by consumers.

For all its faults, the Lifetime Isa as a savings vehicle has a far simpler tax and bonus structure than its cousins in the world of pensions. We don’t want people looking to use higher-risk vehicles like enterprise investment schemes or venture capital trusts only because their pension wrapper is full up, and advisers are often engaged far too late in the day.

Reform of the system by scrapping any one of the allowances (ditching the annual allowance in particular could help the self-employed save more in a high-income year) is something that would appeal to many financial planners. But is there any chance of that happening?

Top planning tips for the lifetime allowance excess

The prospects of any significant change look bleak. Reducing a perceived freebie for the wealthy is always going to be a neat sound bite. The government would also be highly reluctant to create any form of carve-out for any special interest group, lest other professions or demographics come banging on the door for the same treatment.

Besides parliamentary arithmetic, there’s also the small matter of £110m in lifetime allowance breach tax clawbacks that the government would have to forgo. An uphill battle indeed, but planners can only keep banging on the door.

Justin Cash is editor of Money Marketing. Follow him on Twitter @Justin_Cash_1



Can the FCA get rid of Gabriel’s gremlins?

Can the much-criticised reporting system turn a corner in gathering useful data or is it simply destined to be the subject of complaints? Incessant complaints from advisers about the complexity and tedium of the Gabriel reporting system continue to throw a key concern into the spotlight – is the FCA’s data collection actually achieving anything? […]


Steve Webb: Helping clients keep track of NI records

One of the happy by-products of the digitisation of state pension records is that by visiting the government’s “check your state pension” website, clients can also see their full, year-by-year National Insurance contributions record. But as an adviser, there is plenty you can do to help them avoid drawing the wrong conclusions from it. One […]


Case study: administration — managing group life schemes

Our client leads the global market in high-tech electronics manufacturing and digital media. The trustees of the company’s final salary pension scheme insure death-in-service lump sum and dependants’ pension death benefits for active employees, as well as dependants’ pension benefits for deferred members (those who have left service).


News and expert analysis straight to your inbox

Sign up


There is one comment at the moment, we would love to hear your opinion too.

  1. More flexibility is Scheme design is at least part of the answer. Defined benefit schemes (largely a reserve of the public sector now) are often too rigid in structure to allow for AA planning without the clunky opt out/opt in process and for some that is not an option, as they lose links to past service. The Government expected schemes to change so that members didn’t pay the tax charges, so now is the time to make those changes and allow members the choice over their pension savings. And better, clearer communcations would help of course. As a form offering guidance to public sector employers and employees it is clear that the complexity is creating unintended consequences which are resulting in workforce issues – reduced working time, earlier retirements, opt outs (without a clear understanding) and people not seeking promotion. There has to be more education and more choice to help those who are at the allowance levels plan their future without the risks and losses of dumping membership and skills.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm