Yahoo Finance Savers face shock tax bill threat from ‘shambolic’ lifetime allowance change
Retirement savers have been thrown into a “shambolic position” over “rushed” legislation to abolish the tax-free lifetime allowance on pensions, ministers have been warned.
Financial advisers have written to the Government and the regulator to raise their concerns over a “lack of clarity” to the new rules, but say complaints have failed to cut through.
The industry says that, as a result, savers are at risk of losing out because firms and advisers are unclear on how best to help them.
The lifetime allowance, currently £1,073,100, is how much someone could previously save into a pension before an extra charge became due when they accessed it.
Chancellor Jeremy Hunt announced the charge would be removed from April 6, 2023, and would be fully abolished on Saturday April 6, this year.
However, with just two days left before it comes into effect, Andrew Tully, of Nucleus Financial, said: “The legislation to abolish the lifetime allowance has been rushed through and there has been insufficient time to deliver a change of this magnitude. We are only a few days away from implementation and there are a whole host of areas where we don’t yet have clarity.
“It could mean that people are paid too much tax-free cash, it could be that they take an action which they think is correct but isn’t in their best interest. (Financial advisers) are in a difficult position because they’re giving people advice on what course of action to take and it’s not 100pc clear what that should be.”
The bill includes a “Henry VIII clause”, meaning it can be amended at a later date, with the Government confirming that further changes will be made.
Labour has also pledged to bring back the lifetime allowance in some form if elected – prompting fears that a flood of savers will rush to cash in their pensions to avoid tax under Labour.
HMRC has also been in touch with firms to outline 17 areas where the legislation may not currently operate as intended. It has also issued a 105-long question-and-answer document.
Mr Tully added: “HMRC has said it will issue a swathe of amending regulations after April 6 and backdate the effect of these.
“However, it hasn’t yet given us an understanding of what these changes will entail or who they will affect. That leaves platforms, advisers and customers in a hugely difficult position of trying to work out the best way to navigate through this shambolic position while trying to avoid consumer harm.
“You wouldn’t put a clause in legislation like that if you were completely confident about the legislation.
“We could be changing things in two months, three months, six months’ time. What we really want is stability and consistency, because that’s what helps customers. It’s people’s pensions and their income in later life, we need that trust and confidence.”
Tom Selby, director of public policy at AJ Bell, added: “This is far from ideal and means financial advisers, savers and providers will find the switch to the new regime this year hugely challenging. This clearly increases the risk of things going wrong and runs counter to the Financial Conduct Authority’s Consumer Duty, which requires firms to avoid foreseeable harm.
“This potential source of harm was obvious for all to see and yet the Government has ploughed ahead regardless.”
Claire Trott, of St James Place, said: “We don’t have full regulations, the guidance isn’t complete or correct. This has all been put into place to tick a box or a statement that it’d be abolished.
“All it’s achieved is increased complexity, but nothing more than we’ve had in benefits for individuals for the last tax year. It’s created work, confusion and cost to the industry, which creates cost for consumers.”
Recommended
What is the lifetime allowance, exactly?
It comes after a range of experts led by the Association of British Insurers wrote to the Treasury in February to say that a grace period was needed because the new regime wasn’t ready to be implemented in full.
The letter, seen by The Telegraph, asked for a “soft landing” due to the added complexity, allowing firms six to 12 months to get ready for the changes without fear of penalties.
In the reply, economic secretary to the Treasury Bim Afolami rejected the suggestion, saying it had been “consistently clear since the spring Budget 2023 that the abolition of the LTA will be effective from April 2024”.
The UK Platform Group, which consists of 26 of the largest retail platforms operating in the UK, also wrote to the FCA last week to raise concerns about the complexity, uncertainty and lack of Parliamentary scrutiny for the changes.
It also asked the FCA to make the Government aware of the effect on consumers, but has yet to receive a response with just days to go.
The FCA was contacted for comment.
Recommended
Pensions, inheritance tax and Isas: what Jeremy Hunt's tax shakeup means for you
