The lingering uncertainty around what may happen to the pensions lifetime allowance in the wake of the general election is causing confusion for pension savers, says Evelyn Partners.
While Chancellor Jeremy Hunt’s abolition of the LTA was widely welcomed, some of the details remain uncertain, while Labour’s undertaking to reinstate it has also raised questions, the firm said.
According to Gary Smith, partner in Financial Planning at wealth management firm Evelyn Partners: “We hope Labour will soon offer some clarity on how and when it plans to reintroduce the LTA. If an LTA is reintroduced, the key questions will be at what level and will there be some sort of carve-out for highly-paid NHS clinicians?”
Smith said it seems unlikely that the threshold would be set back at its most recent level of £1,073 million which resulted in unwelcome tax charges for doctors and surgeons and exacerbated staffing shortages in the NHS. Instead, Smith expects the level to be pegged somewhere around the £2 million mark.
“Either way, it is important to understand that the LTA has been removed from the statute book and so a future Government wishing to reintroduce it could not just switch it back but would have to pass new legislation which would likely take the form of a Finance Bill on the back of a Budget,” he explained.
Smith does not expect a new LTA to come into effect until April 2025, and said applying a new LTA retrospectively would be highly contentious and open to challenge.
Smith added: “Given all this, for some savers who may have previously ceased pension funding because of the LTA and are very keen to restart with regular or lump sum contributions, the current window of opportunity might be worth taking advantage of, after taking some advice.
‘But making drastic changes to one’s financial plans in what is a fluid situation is probably inadvisable, particularly for those who are about to access their pots. For instance, if some savers are thinking of rushing to access their 25 per cent tax-free lump sum because of fears over what Labour might do, they should take advice before any hasty action.”
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