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Skandia wants LTA axed to boost saving

Skandia is urging HM Revenue & Customs to scrap the lifetime allowance on pension savings in an attempt to help more people save for retirement.

The Government is currently consulting on reducing the lifetime allowance from £1.8bn to £1.5bn.

It is also considering lowering the annual allowance from £245,000 to between £30,000 and £45,000 a year.

Skandia says if the proposed new annual allowance on pension contributions is going to work, pension tax relief has to become less restrictive.

Head of proposition marketing Colin Jelley says the new annual limit reduces the cost of pension tax relief enough so as to make a cap on the total value of a pension unnecessary

He says: “Any requirement to reduce expenditure on pension tax relief must be balanced by the equally important objective of encouraging people to save for their retirement.”

To prevent abuse of tax-free cash rules, he suggests this could be capped at £450,000 or 25 per cent of the current £1.8m lifetime allowance.

He also proposes allowing the new annual allowance to roll over for a period of three years to give people greater flexibility.

Jelley says: “The vast majority of people will not be able to make full use of even the capped annual allowance for most of their working life but they may be able to make up for this with contributions later when they have more excess income.”

Facts & Figures managing director Simon Webster says: “Any simplification has to be welcomed because the more straightforward pensions are, the better chance there is that Joe Public will engage in what is going on with them.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. A tad naive me thinks. The headline that the gov’t scrap a £1.8m LTA is a tough one to see gaining ground, especially given Vince Cable’s comments yesterday.

    As for whether Joe public is bothered by a £1.8m LTA i will leave others to judge !

    Oh and there is apparently a budget deficit

  2. Yup, helping the super rich to put more in their pension pots will really help drive a savings culture in this country!

  3. Just a thought, but the amount of the LTA affects protected cash for a lot of joe public in existing arrangements.

  4. The LTA should go. If it was purely a cap on contributions, it might be defensible. Unfortunately, it is a cap on total pension accumulation, including the growth on contributions. Someone who made only modest contributions over a lifetime but with good investing and financial skills could breach it purely because they chose the right investment holdings. The LTA discourages good stewardship and efficient management of pension holdings.

  5. Even then Derek, I doubt it affects too many people.

    Making some basic assumptions (inflation 3%, growth 7%) “Joe Average” would have to start off with £500pm contributions to his pension, escalating at 3% each year and work (and save to a pension) for 40 years to achieve a £1.8m pot.

    With starting wages in the low 5-figure bracket, anyone putting £6k pa into a pension isn’t giving themselves much by way of luxuries while they’re working.

  6. I agree that the cap on accumulation is wrong as individuals who take control of their pension and do better than the city experts get punished but if the city experts lose us money their is no “tax credit”.
    Further hard working middle class people may be able to acheive a pension similar to the old 2/3rds final salary of say £80,000 without being “super rich” but still have to pay taxes higher than the highest level of income tax because the LTA required to fund an £80,000 annuity is currently above £1.5m. Surely a sensible compromise would an annuity equivalent value link to wage inflation for those who have worked hard but are not super rich. I believe the 2004 protection option was set at £1.6m (at 2004 money) which was then equivalent to £75,000 annuity.

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