Alliance Trust Savings: scrap lifetime allowance

Dundee-based Alliance Trust Savings has called on Chancellor Philip Hammond to scrap the lifetime allowance (LTA) for pension savings in his Autumn Statement next week.

Sara Wilson, head of platform proposition at Alliance TrustSavings, said: “The new Chancellor is under pressure from the pensions industry to scrap the lifetime allowance (LTA) for pension savings. The almost bi-annual reduction of the LTA, along with the taper introduced in April this year to reduce the allowanceby £1 for every £2 of income above £150,000, has brought more confusion and complexity to the market.

“We believe however it is unlikely that Chancellor will do away with the LTA without also reducing tax relief on contributions. The current system of paying tax relief to savers at their highest marginal rate means those on high salaries benefit far more from the Government top up than those on low salaries. A widely expected shake-up of pensions taxation didn’t materialise in the 2016 Budget, but with Theresa May talking of a new emphasis on fairness, it could now be on the cards.

“There is a risk that large scale changes such as the end to LTA could have the effect of adding yet more complexity to the pensions system for both savers and providers, so any measures would need to be set out carefully.

“Higher rate taxpayers appear at greatest risk of losing out, so for them now may be a good time to think about maximising pension contributions while higher rate tax relief is still available. If the Government does act on 23 November, people may only have until April 2017 to make the most of the current rules.”