With the number of pension savers breaching the allowance having risen sharply, there have been further calls for the abolition of the lifetime allowance.
In the 2011/12 tax year, there were 940 lifetime allowance breaches reported by providers totalling £36 million. In the 2017/18 tax year, there were 4,550 breaches recorded with a total value of £185 million.
Jessica List, pensions technical manager, Curtis Banks, said: “The number of clients affected by the lifetime allowance has increased dramatically in a short space of time, and multiple forms of protection have added complexity to the system. It’s unsurprising that the lifetime allowance is unpopular given the number of breaches; however, scrapping it altogether would be no small feat as it is tied to other pension rules which would have to be changed at the same time.”
List said that it was unlikely that the Government would move to scrap the lifetime allowance in the short term as this would be seen as a tax break at a time when it is looking at ways to increase tax revenue.
List added: “Scrapping the lifetime allowance could also have a knock-on effect of increasing the Government’s contribution tax relief bill if more people begin to contribute again with no lifetime allowance to consider, so it could be paired with less favourable counter-measures such as drastically reducing the annual allowance.”
David Mills, Ridgeways Ltd, commented: “Removing the lifetime allowance would not only greatly simplify the UK’s pensions system for the consumer but importantly, would aid their engagement too. We have to get people to save for the long term and having a complex pension system is certainly not helping.
“It seems nonsensical that we punish people for having good investment returns, given that there’s already a limit on the amount of tax relief available on the money they have paid into their pension over the years. We believe that the lifetime allowance should be scrapped.”
