Will The Lifetime Allowance Be Abolished?

caldejud

Hi all

For planning reasons I have been trying to get to grips with some of the technicalities of the Lifetime Allowance and the charge and thanks to OPs for helping me out....but on wider reading there seems to be a fair amount of noise about the possible abolition of the LA on the grounds that it is almost impossible for HMRC to monitor and enforce plus the restrictions on how much someone can put into a pension plan has been cut heavily over recent years!!!

I can't believe the Tories would do it as Labour wold have a field day...cuts for the rich. blah blah blah.

What do all you savvy boarders think?

RuleTheWorld

Focus on yearly allowance seems more reasonable

seems odd that if the market goes up say 40% over a short time that it would propel lots of normal people into LTA problems.

peterg1965

The Chancellor could possibly get away with it by restricting AA to say £30K a year. It could then be justified, particularly as the LTA is one of the causal factors for a lack of GPs and Hospital senior Drs who decide to retire early. Their NHS pension valuation takes them over the LTA limit at a relatively young age (mid 50s) and it becomes a disincentive to continue working.

ischofie1

I think it make a lot of sense to do away with it & control pension pots by AA but you have 3 problems: -
1. A Labour Party who’ll happily argue against something that makes sense if it gives them an opportunity to damage the conservatives.
2. A Conservative party that is currently too weak to counter argue against the Labour Party.
3. The general public who are generally too gullible & will side with Labours way of thinking, IE tax/restrict anyone remotely well off and all the problems of the less well off will go away.

kidmugsy

Our own affairs are unaffected by the LTA so my view is disinterested. Scrap it! Over time the annual allowance (reduced if needs be) will do roughly the same job in a far simpler and less damaging way. The LTA has arbitrary and nasty knock-on effects, including (it would seem) encouraging a fair few NHS doctors to retire early.

While they are at it they could scrap the reduction in AA that afflicts the very highly paid. They should also get rid of the reduction in Personal Allowance that's imposed on people earning more than £100k such that they face an effective income tax rate of 60%. That would be two more irrational pain-in-the-neck complications for the bin.

If these policies were to be funded by reducing the threshold at which 45% income tax is paid, so be it. At least that would be simple, rational and transparent.

And another thing: they could usefully bin the extra Inheritance Tax nil rate band for owner-occupied houses left to direct descendants. It's inequitable and yet another tedious complication. They could always make an increase in the ordinary nil rate band to compensate.

dunstonh

Will The Lifetime Allowance Be Abolished?

It should be. However, that would take imagination and a change in the annual allowance rules and the odd set of rules to cover the golden handshakes of the 90s and early 2000s that the lifetime allowance was brought in to counter. It was never intended to hit the average person. When first brought in, under 50,000 people were captured by it.

Do you think Hammond has the imagination and ability to sort that issue out?

And of course, Labour will accuse the Tories of helping the rich despite many public sector employees getting close or just over the lifetime allowance due to their generous pension schemes. As the public don't understand pensions, they will side with Labour.

The lifetime allowance is a bad allowance as it penalises saving and growth. Two people could have the same contribution. One makes the money grow well and invests in ways that helps the UK economy and goes above the LTA and the other invests badly in ways that do not help the economy and does not go above the LTA. The LTA penalises the one that does it right.

Teaandscones

dunstonh wrote: »

The lifetime allowance is a bad allowance as it penalises saving and growth. Two people could have the same contribution. One makes the money grow well and invests in ways that helps the UK economy and goes above the LTA and the other invests badly in ways that do not help the economy and does not go above the LTA. The LTA penalises the one that does it right.

Sadly reducing the LTA to £1m was a stupid policy proposed by Ed Milliband and then copied by George Osborne. Neither understood pensions (though Ros Altman and Steve Webb who did understand pensions both opposed it).

It would be much better to have a single rate of tax relief say 25% and if necessary reduce the annual allowance.

NordicNoir

Teaandscones wrote: »

It would be much better to have a single rate of tax relief say 25% and if necessary reduce the annual allowance.

The problem with this though is taxing it on the way out, unless they said that all pensions are taxed at 25% on the way out. Otherwise a 40% taxpayer would pay 15% on the way in and 40% on the way out, totalling 55%, making it all a bit pointless to save for a pension in the first place.

Thrugelmir

MichelleUK wrote: »

Otherwise a 40% taxpayer would pay 15% on the way in and 40% on the way out, totalling 55%, making it all a bit pointless to save for a pension in the first place.

How many people pay 40% tax on their retirement income?

bigadaj

Thrugelmir wrote: »

How many people pay 40% tax on their retirement income?

Presumably those paying 40% during their working life.

In relation to public sector pension then it's interesting to explore the cosmequences of the Lta, using say doctors specifically.

At the Lta limit then the pension will be worth £50k per year, and many of those will be use to earning significantly more.

Are these people retiring absolutely, going to work in the private health sector or doing something else?

I've no strong feelings in the Lta either way but am interested to explore the consequences that occur now.

NordicNoir

Thrugelmir wrote: »

How many people pay 40% tax on their retirement income?

I have no idea! I realise that most people will try their hardest to not slip into the 40% bracket, but there must be many who will have a 'number' that takes them in to the 40% tax band.