Pension changes could be afoot as it has recently been reported the Treasury is looking into a “tax raid”. Whitehall sources recently told The Telegraph a number of actions are being considered, but one which stood out was the lowering of the Pension Lifetime Allowance. The Lifetime Allowance is a limit on the amount of pension which can be withdrawn - whether in a lump sum or through retirement income - which can be paid without triggering an additional tax charge.
The charge is 55 percent if benefits in excess are taken as a lump sum, or 25 percent if they are taken as an income, which understandably many people will want to avoid.
Currently, the Lifetime Allowance is set at £1,073,100, and will be frozen for the next five years under Government plans from the Budget.
But the reports from the newspaper have suggested the sum could be lowered to £800,000 or £900,000.
Express.co.uk spoke to Christine Ross, Head of Private Office (North) at Handeslbanken Wealth and Asset Management, who provided further insight into the matter.
She said: “I found what was being said was quite scary, to be honest, particularly the mention of a reduction in the Lifetime Allowance.
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Of course, this did not remain at the same level, and there have been changes which have taken place over the years.
Figures from Royal London show the standard Lifetime Allowance as both increasing and decreasing over time.
It seemed to reach its lowest point in the 2016/17 tax year at a round £1million, before steadily climbing again.
But with a freeze confirmed, and lowering speculated, Ms Ross appeared frustrated with the actions taken on the allowance.
She continued: “It just seems like after all of this we’ve gone backwards once again.
“It’s really been a frightening game of snakes and ladders when it comes to this issue.
“We’ve gone all the way up with a £1.8million Lifetime Allowance at one point, and now we’re all the way back down again.
“I think if we come back down further, of course people will continue to save through pensions due to the tax-free growth.
“But I am concerned that if we keep seeing more and more change, that we are just going to turn people off. If we keep lowering the bar, I’m worried about what the effects of this will be.”
Of course, a key point to consider with the Lifetime Allowance is how much individuals can withdraw.
With many more people now opting for a drawdown, it will be important to monitor pension growth as well as annual income.
Ms Ross added: “We wonder what the safe level of withdrawal is when it comes to the Lifetime Allowance.
“I think something like a three percent withdrawal would be reasonable for someone to have a level of income but for the remaining capital to grow and give them pay rises.
“At £900,000 that would be £30,000, which seems good and ample now in today’s terms, but this could fall short in retirement, and might not be what they were aiming for.”
Finally, Ms Ross centred in on the impacts of what such a measure could ultimately mean.
A lowering of the Lifetime Allowance, she stated, would have consequences not only for the industry, but also for those planning towards retirement.
She concluded: “I worry that if the bar keeps coming down that people are going to have to look to other methods of saving.
“There is something about a pension that has a discipline about it. It isn’t touchable, and the access age is going to go up.
“People do use ISAs, and these are perfectly good vehicles for planning towards retirement.
“But if the Lifetime Allowance keeps coming down, then the shift is likely to be towards more accessible savings.”
Express.co.uk has contacted HM Treasury for comment on the reports on the Lifetime Allowance.
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