With the new government getting its feet under the table, we will now hopefully be able to complete the abolition of the lifetime allowance (LTA).
It has been abolished but a complete set of working regulations for the new lump sum allowance (LSA) and lump sum and death benefit allowance (LSDBA) still need to be implemented.
On top of that, the guidance notes the pensions tax manual needs to be complete and up to date, and all the responses to any outstanding working questions also answered.
This is not an easy task, and I really feel for those on the front line trying to shoehorn changes from percentages if a flexible number, such as the LTA, into fixed numbers such as the LSA and LSDBA.
In this period of more calm and certainty, advisers would be wise to continue reviewing clients’ contributions
Percentages were used to deal with changes easily over time. We now have 18 years’ worth of changes to deal with, not including the pre-A-day era of complexities, too.
With all that on the go, and a possible review of the broader pensions landscape on the horizon as mentioned by Labour before the election, now is the time to try and get ahead of any potential changes.
It’s important not to panic. Pensions are full of complex legislation, and changing most things at a drop of a hat is therefore very difficult. Before anything is decided, the potential revenue gains will need to be weighed up against the upheaval of making any changes, so decisions won’t be taken lightly.
The easiest change to make, which we have seen happen multiple times over the years, is with regards to the annual allowance. We now have multiple levels of allowances to stop those accessing pensions from recycling their income, those with high incomes getting too much pension tax relief, and a standard allowance limiting all the other workers. Apart from some simplicity here, changing the allowances wouldn’t achieve very much.
It’s important not to panic. Pensions are full of complex legislation, and changing most things at a drop of a hat is therefore very difficult
It was previously anticipated the LTA would be reinstated, but this is no longer expected. Instead, the new government has stated the need for calm and stability, with the promise of a review. There are also no plans to axe tax-free cash, which will come as a relief to many.
Flat rate tax relief has been mentioned by some, but the review into this in the past has not led to any changes, and given this would create other issues and complexities, it would not be a short-term fix.
There are still other potential pension changes on the table, such as extension of auto enrolment and the state pension triple lock, or even triple lock plus, which would need to be factored into future policy. But, for now, it feels much more like business as usual.
In this period of more calm and certainty, advisers would be wise to continue reviewing clients’ contributions, maximising them where possible and only accessing pensions where it makes sense.
Claire Trott is divisional director, retirement and holistic planning, at St James’s Place
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