Following the leaked reports today that the Chancellor is planning a major change to pensions legislation in tomorrow’s budget, Rob Burgeman, senior investment manager at wealth manager RBC Brewin Dolphin, has shared his views with IFA Magazine as follows:
“If the new £1.8m cap proves to be true tomorrow, this is fantastic news for many professionals that have had a disincentive to work and save because of the frozen lifetime pension’s allowance of £1.07m.
“We recently called for the LTA and the annual allowance to be inflation-linked following the same triple lock matching that applies to the UK State Pension. This would still be a useful approach for the annual allowance. This would ensure a consistent inflation-linked approach to pensions.”
A comment which was recently issued by Rob Burgeman read as follows:
“The pension lifetime allowance and the annual allowance should both be inflation-linked following the same triple lock matching that applies to the UK State Pension1. This would ensure a consistent inflation-linked approach to pensions.
“The LTA has halved in real terms since 20122. And it’s been frozen for five years until 2025/2026 meaning it’s reducing in real terms by the current inflation rate of around 10% per year.
“A total of £382m was paid in charges by people whose drawings on their pensions exceeded the LTA limit in 2020/21, up from £344m in the year before3.
“Savers are limited to putting £40,000 per year into their pension through the annual allowance – seeking to restrict the size of their final pot is doubly limiting. Furthermore, the money that is in that pot will be taxed again when it is taken as income anyway. It is unfair to punish people for achieving good investment performance over which they have limited control.
“The existing taper to the annual allowance for additional rate taxpayers would continue to limit the cost to the HM Treasury of annual pension contributions.
“By inflation linking both these allowances we should reduce the disincentive to save.
“This should be enshrined in law with a pledge from both major political parties to commit not to change the criteria for a minimum of at least 10 years to allow pension savers some form of certainty.”
2The LTA was £1.8m in 2012. With inflation that is £2.2m in 2022. The current LTA is £1.07m