Middle income earners will benefit from LTA rise
18 October 2018
New inflation figures will affect both the State Pension and the lifetime allowance limited.
Following publication of the inflation figures for September, pensioners can expect to see their State Pension rise by up to £221 a year from April 2019.
The pension will be worth £8,767 from next April, rising from the current £8,546, following the latest inflation levels.
Data from the Office for National Statistics showed UK inflation grew by 2.4% in September, down from 2.7% in August. However, because of the triple lock method, which guarantees that the State Pension increases in line with the highest of either inflation, earnings or 2.5%, the State Pension is due to rise by 2.6% in 2019 – in line with July’s average weekly earnings growth.
Meanwhile, the lifetime allowance (LTA) will go up by £24,720 to a new limit of £1,054,800 from its current £1.03m.
Kate Smith, head of pensions at Aegon, said the change to the lifetime allowance could make a “big difference” in the amount saved without attracting a tax charge. Smith said the increase wouldn’t just benefit high earners, but those on middle incomes who have been saving into a defined benefit pension for a long time and run the risk of being caught by the tax hike that comes with surpassing the allowance.
Tom Selby, senior analyst at AJ Bell, said the decision to peg the lifetime allowance to inflation “bucked a long-established trend of sharp cuts” but warned that any move to axe the lifetime allowance in this month’s Budget would be harmful.
“Such a move would risk sending a seriously negative anti-savings message, as well as adding more unwelcome complexity as new protections would inevitably be needed for those close or over the new, lower limit.”
Commenting on the rise in state pension, Selby said the figures provided a “welcome income boost” to millions.
“With inflation returning to the economy, the value of protection against rising prices is not to be underestimated. In the context of the triple-lock, it’s worth noting the guarantee will cost the government nothing compared to the earnings and inflation double-lock some have proposed. It is only in a low inflation, low earnings environment that the promise begins to bite.”
However, Andrew Tully, pensions technical director at Canada Life, described the figures as a “double-edged sword” with UK households still collectively requiring an extra £18.8bn a year if they wish to maintain their standard of living compared to a year ago.
He commented: “People saving hard for retirement will now have an opportunity to save a little more into their pensions before they are hit by the lifetime allowance tax. Although this increase is welcome, the amount you can save into a pension is already capped through an annual allowance. For those who are struggling to balance the weekly budget, these latest inflation numbers will offer no respite. The inflation squeeze continues with households needing to stump up an extra £691 a year to simply stand still.”
Origo is to launch Unipass Letter of Authority (ULoA) at the end of November, a service aimed at simplifying...
Lee Old, director, Antony George Recruitment, provides some tips for tackling your annual review meeting. The answer to this question...
Kim Bendall has launched her own firm, Go Paraplanning, and is looking to provide tailor-made support services to new...