Time to abolish the Lifetime Allowance
Thankfully, the 2018 Autumn Budget involved minimal tinkering with pensions – something that we welcome here at the Embark Group.
As was widely expected, the government increased the Lifetime Allowance for pensions savings to £1,055,000 from April 2019, in line with CPI. The Lifetime Allowance, which currently stands at £1,030,000, is a limit on the value of payouts from an individual’s pension schemes which can be made without triggering an extra tax charge.
Although some investors will welcome the move, we would question why the Lifetime Allowance is still in existence; abolishing it would be a helpful step towards simplifying pensions.
Robert Graves, Head of Pensions Technical at the Embark Group, comments:
“The purpose of the Lifetime Allowance is questionable because realistically few people are able to contribute enough to their pensions to exceed the Lifetime Allowance. Where the limit is exceeded, it is more likely be down to strong investment performance, which should not be penalised through a tax charge.”
Raising the higher rate income tax threshold will impact pension tax relief
Chancellor Philip Hammond used the Autumn Budget to announce plans to raise the higher income tax threshold from £46,451 to £50,000 in April 2019, a year earlier than planned. Although it is estimated that this will impact 4 million higher rate tax payers, it is important to note that these individuals will lose out on higher rate tax relief on their pension contributions. Therefore, they should consider making contributions in the current tax year on which they will get higher rate tax relief. As always anyone with earnings that fluctuate from year to year around the higher rate threshold need to consider the timing of pension contributions to take advantage of higher rate tax relief.
Good news for the Pensions Dashboard
The Embark Group welcomes the announcement that the Treasury will commit an extra £5 million to the Department for Work and Pensions (DWP) to help to build the long-awaited Pensions Dashboard. This tool will enable individuals to view their pension pots, including their State Pension, in one place.
The Budget confirmed that DWP will consult later this year on the design of the dashboard and how this can be achieved via an industry-led approach. This represents a turnaround from the summer when there was potential for the project to be shelved.
“We are pleased this project is now getting some formal support from Government. While a very small amount, the funding should be enough to initiate work on the dashboard and, hopefully, bring the industry together to deliver a solution that is valuable to consumers.” Graves explained.
Pensions to become Patient Capital investors
The government used the Budget to announce plans to allow defined contribution (DC) pension schemes to hold ‘patient capital’ investments. These are typically in unlisted, innovative and high growth businesses.
“It will be interesting to see if this initiative will extend to SIPPs and SSASs that serve high net worth and sophisticated investors who may wish to access this new alternative investment.”
“As is so often the case, the devil will be in the detail; we look forward to hearing more about this initiative,” Graves added.
Self-employed pensions push
The Budget also confirmed the government’s plans to encourage the self-employed to save into a pension. DWP will publish a paper outlining the government’s position on this during the winter. We are pleased to see Government intervention in this area and look forward to hearing more.
Pensions cold calling ban
We also welcome the pensions cold calling ban, which was confirmed in the Budget Red Book. We have long been in favour of this measure and are glad to see it has finally come to fruition, providing much-needed protection against fraudsters who operate in this space.
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