Jeremy Hunt’s proposal to remove the lifetime allowance (LTA) could mean many clients restarting or increasing their SIPP contributions.
However, this may be a limited opportunity, as Labour has suggested it may remove these new freedoms if elected.
As always, the devil is in the detail, so below are just a few of the potential opportunities for your clients.
For more planning opportunities offered by the Spring Budget – and a chance to ask questions – please come along to a webinar I’m presenting tomorrow (Wednesday 3 May) from 10.30-11.30.
By the end of the session you’ll be able to articulate how the proposed abolition of the LTA impacts on various aspects of pension planning. You’ll also have an understanding of the restrictions being placed on pension commencement lump sums and how this may affect different segments of your client bank.
Abolition of the lifetime allowance
From 6 April 2023 the LTA charge is to be removed through legislation introduced in the spring 2023 Finance Bill, which is currently going through parliament.
This change means the LTA still remains in place from 6 April 2023, and it’s just the LTA charge itself that is being removed in the 2023/24 tax year. The pension scheme administrator will still need to continue to carry out lifetime allowance checks when paying benefits and to issue benefit crystallisation event (BCE) statements.
The LTA is to be fully abolished from the 2024/25 tax year with the appropriate legislation contained in a future Finance Bill.
Bear in mind this isn't yet legislation, the Finance (No. 2) Bill is likely to receive Royal Assent, and become law, probably around June.
As mentioned, the Labour party has intimated that it will reintroduce the LTA. However, a counter argument to this is that it was a Labour government that introduced the LTA, initially at £1.5m rising ultimately to £1.8m. It was, firstly, the coalition government, then the present government that were responsible for reducing it, ultimately to as low as £1.0m in 2016.
Opportunities
This means there’s potentially a two-year window, and certainly one tax year, to maximise the opportunities afforded by the proposed changes. These include:
- Increased, or recommencing, funding of pensions for those previously dissuaded from doing so over concerns they would exceed their LTA. If carry forward of unused annual allowance (AA) is available, then up to £180,000 could be paid in 2023/24 tax year, for example. Tapering of the AA may act as a limiter on this amount as would the money purchase annual allowance.
- Those who’ve fully utilised their LTA could fund further pension provision without an LTA charge being applied. They will, however, have no entitlement to any additional pension commencement lump sums.
- People with uncrystallised funds currently greater than their LTA, or exceeded due to new increased funding, might wish to crystallise the full amount to reduce the likelihood of an LTA charge in future if Labour is elected. There’s scope for reinvesting any pension commencement lump sums in an ISA or GIA.
What you can do
It could be a good idea to identify high net worth clients, who due to the perceived negativity surrounding pension funding, have disengaged from funding their pension in recent years.
Additional opportunities provided by the Spring Statement include the fact that certain customers with enhanced or fixed protection can make further contributions without losing their protection. Customers previously limited by AA restrictions can also increase contributions.
Come along to the webinar tomorrow to find out more.