Budget comment: Premier's Ian Gutteridge comments on the effects of the reduced Lifetime Allowance

18/03/2015

Premier

Commenting on the reduction of the Lifetime Allowance for tax-free pension savings from £1.25m to £1m and the importance of individual advice, Ian Gutteridge, Director of Premier, the corporate benefits and wealth management firm, said:

“Hardly a surprise. Most people within the industry were expecting an attack on the LTA. It hits any person likely to receive a pension over £50,000 pa. A clever political move? Who’s going to feel sorry for someone on course for a pension in excess of £50,000? Not exactly a vote loser!

“In the past we had “stealth” tax designed to hit people when they didn’t see it coming. Now we have “precision bombing” tax that targets those who are sensible enough to save for retirement at an early age. Now a  40 year old with just over £250,000 of pension savings growing at 5% pa, receiving a 10% annual contribution and salary growth of 3% each year will hit the limit by the time they are 65 years old. Naturally, we hope HM Treasury build some future inflation proofing into the LTA, but based on the recent past performance don’t bank on it. It has gone down by 45% since April 2012!

“Also, HR Directors, Pension and Reward Managers must consider how to ensure their key people are not paying too much towards their pension provision. If the eventual pension fund exceeds the reduced LTA of £1m there will be tax to pay on the excess.

“If they get it wrong, the cynic might ask – why did they bother with some of those contributions in the first place? Why didn’t they pay the money directly to HMRC and be done with it!

“The smart players will look at their Executive provision and employ a good quality adviser to crunch the numbers, explain the issue and give advice to Executives. This doesn’t have to cost much and can save thousands of pounds going to the Exchequer from both the member and the pension scheme. Individual advice will be key here.”