Reacting to news that the Chancellor has abolished the lifetime limit on tax-free pensions savings, Michael Aherne, pensions partner at Herbert Smith Freehills, argues that, whilst welcome, the news "creates significant uncertainty and complexity, with the potential that individuals, trustees and employers will feel short-term pain, before noticing any long-term gains."
He says: "The abolition of the lifetime allowance is the biggest single act of tax simplification in years. However, in the short term it creates significant uncertainty and complexity. Individuals who have previously had to pay large lifetime allowance tax bills may also feel particularly hard done by if nothing is done for them.
"With that in mind, it is critical pension providers and trustees alert individuals who have exceeded the lifetime allowance and who are preparing to access their pension benefits imminently that they may be better waiting until after 6 April. Trustees also need to consider the impact the abolition of the allowance will have on their scheme, particularly where benefit accrual has been limited by reference to the lifetime allowance.
"Employers who have seen experienced and highly skilled workers being forced to retire early or work part time due to the lifetime allowance will welcome this change. However, they will clearly need to review any arrangements they have put in place to mitigate its impact for higher paid staff. They will also need to consider how the increase in the annual allowance impacts their remuneration and reward packages for such staff."
"It would also be helpful for government to clarify as soon as possible what the position of individuals with protections, such as fixed protection, will be. No doubt trustees and administrators will soon be fielding calls asking whether they can start pension saving again without losing all the benefits of those protections. The position is not currently clear."