Increasing the Lifetime Allowance (LTA) to £1.8m – a move predicted by some experts for tomorrow’s Budget – could lead to a surge in business for financial advisers, a former Pensions Minister has predicted.
Some commentators have forecast that the LTA could rise from £1.0731m to £1.8m in the Budget although there is no certainty of this.
Some pundits have also predicted that the Money Purchase Annual Allowance will rise from £4,000 to £10,000.
Both moves could encourage more people to work longer, particularly medical professionals, or consider “unretiring.”
The aim would be to help fill gaps in the UK economy which has over 1.1m vacancies.
Former Pensions Minister Steve Webb, a consultant at pensions actuary LCP, said: “If these rumours are true, these jaw-dropping changes could be a game-changer for those who are currently limited when it comes to saving into a pension.
“Up to two million people who have already breached Lifetime Allowance limits, or could expect to do so, will now find it worth exploring saving more into a pension.
“A big change could also remove some of the complexities of the system, as those who had previously locked into Lifetime Allowances at £1.5m or £1.25m on condition of no further pension saving would be free to save more. The changes could also be a windfall for those with large pensions on the brink of retirement, who would now pay far less tax when they access their pensions.
He said the changes, even if only partly implemented, could herald a surge in business for advisers.
He said: “Financial advice firms will be cancelling all holidays for their advisers as they will face a surge in demand following the Budget. In addition to the normal rush of activity to meet the 5 April deadline, this year people may be looking to review their pension savings plans not just in future years but even in the current financial year. We are likely to see a surge in interest in saving more for a pension and pension providers may also need to gear up to deal with the increased demand.”
The rumours are widespread that Chancellor Jeremy Hunt will act to encourage older people to return to work, however there is no confirmation from either the Treasury or the Chancellor that any measures will be taken.
Pete Glancy, head of policy at Scottish Widows, said: “The Government must seize the opportunity to reform the counter-productive series of tax allowances, if they are serious about incentivising older professionals to return to work.”
Pension allowances have all been frozen in monetary terms, despite the recent inflationary pressures. It means that more and more older skilled professionals that the country desperately needs, such as doctors and those in areas such as advanced manufacturing and bio-tech, face being hit by significant and unexpected tax penalties simply for returning to work.
Mr Glancy said: “We want to see the lifetime allowance scrapped for defined contribution pensions; the annual allowance increased at least in line with inflation to help those in defined benefit pensions; and the money purchase annual allowance disapplied to those who have accessed some of their pension savings simply to make ends meet.”
Gary Smith, Financial Planning partner at wealth manager Evelyn Partners, said: “The lifetime allowance has created a well-documented disincentive in the public sector where, especially in the NHS, rules around defined benefit pensions mean that many professionals retire early or are reluctant to return to work.
“But the lifetime allowance is becoming a greater issue for those with defined contribution pension schemes who have saved diligently over a long period, and this will only escalate at current rates of inflation.”
Mr Smith said the lifetime allowance is too low, given that it stood at £1.8m just 10 years ago and that since then inflation means incomes and savings have soared.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “We would like to see the Chancellor go further than changing pension allowances, and call for a full-scale review of the pension tax relief system. Endless tinkering over the years has resulted in a complex system that is difficult to navigate.”
