Financial advisers remain wary around the longevity of the Government’s recently announced Lifetime Allowance policy, according to an AJ Bell survey.
In a surprise move, Chancellor Jeremy Hunt announced in March that the tax charge – levied upon those with a pension pot worth more £1,073,100 – would be abolished. Years of cuts under successive governments had seen the LTA drop from a high of £1.8 million in 2011/12.
A survey of advisers by AJ Bell shows that nearly three quarters (72%) expect a future government to re-introduce the LTA in some form. A further 19% said they thought it was a possibility. Just 5% do not believe a future government will reinstate the limit, while 4% were unsure.
Anticipating the possibility of a political u-turn on pension taxation, more than half of advisers said they also expected at least some clients to crystalise before the next General Election in an effort to mitigate any change in legislation.
The Chancellor also unveiled a cap on the maximum Pension Commencement Lump Sum at the 2022/23 tax year amount. Going forward, savers will be limited to a maximum tax-free cash withdrawal of £268,275, with separate rules put in place for those with enhanced protected tax free cash. Asked if they expected the cap to remain in place, 55% of advisers said they thought it would remain unchanged, while 19% expect it to be cut and 11% think it could increase in future. One in six (15%) said they felt unsure.
Rachel Vahey, head of policy development at AJ Bell, said: “The budget changes have – in a single stroke – removed much of the complexity in pensions. It should now be easier for clients to understand their pension saving choices, especially those with larger funds who are bumping up alongside the old lifetime allowance.
“But this positive development risks being shattered by the political uncertainty surrounding the removal of the lifetime allowance. Advisers and their clients have been put in the unenviable situation of being piggy in the middle of a political pensions spat.
“The risk is a desire to outwit future changes drives clients’ choices on when to crystallise funds, rather than a balanced decision based on the current situation and what is best for them and their families.”
Vahey said it was unfair to place advisers into a bubble of uncertainty.
“I hope that all political parties open up communication with the industry, so collectively we can reach a position we all support, and, importantly, advisers and their clients can trust won’t change overnight,” she added.
