The lifetime allowance (LTA) is one of those subjects referenced in lots of pension literature, and yet, it only affects a minority of people. With this in mind, imagine the ‘ooohs’ and ‘ahhhhs’ when one of the rabbits out of the 2023 Spring Budget hat was the announcement to make the LTA disappear.
On the face of it, its removal has many benefits, including helping certain cohorts of people to fall back in love with pensions (and work). After all, the announcement was made with certain NHS roles in mind. It could also entice people who previously stopped contributing due to any allowance concerns to reconsider investing in a pension. It could also support pension-related recruitment and retention package discussions.
There are a lot of positives here, not to mention more people saving into pensions may also help the government with its Mansion House ambitions. However, before we press ‘ctrl + F’ and remove all references to the LTA, policy is a bit like magic; those on the stage need to know how it works. At this point, we are still waiting for HM Revenue and Customs (HMRC) to confirm who is holding the hat and who is holding the rabbit, so some finer details may yet change.
Much like a classic transformation trick, LTA is disappearing but enter stage left, the lump sum allowance, and the lump sum and death benefit allowance.
The lump sum allowance is a cumulative limit of £268,275 on the tax-free elements of someone's pension benefits. The lump sum and death benefit allowance is a cumulative limit of £1,073,100 on the tax-free elements and lump sum death payable to, and in respect of, someone’s pensions.
This has led many pension administrators to feel they are making terminology changes instead of taking anything away. It looks like the same rabbit, even if it is now sporting a tiny little hat. Ah, maybe not quite a disappearing act then.
Mark Ormston is chair of the Pensions Administration Standards Association's (PASA) Industry Policy Working Group
