A change in parliament could be reflected in the lifetime allowance, according to Rosalind Connor, managing partner at ARC Pensions Law.
Speaking on a webinar organised by Pensions Playpen earlier this week (April 18), Connor discussed the changes to the lifetime allowance.
In a shock announcement last month, chancellor Jeremy Hunt abolished the lifetime allowance on pension pots altogether.
As part of his Spring Budget, he said the LTA charge will be removed from April 2023 before the allowance is abolished entirely from April 2024.
However, despite advisers welcoming it, Connor said it could change further.
“As a matter of law, you can make the tax law say whatever you like,” she said.
“What I perceive labour doing is reviewing this and restructuring it. I don't see it likely that Labour will say ‘oh let's just act as if nothing happened on April 6 2023’ because apart from the fact that just annoys everybody, this is the opportunity to review a system that's been in place for the better part of 20 years, which we all know doesn't work perfectly, is fiddly in certain places and has unintended consequences.”
Rachel Reeves has said Labour will oppose the LTA changes, but Connor argued Reeves is saying that if a Labour government comes in, it won't be that Labour will just reinsert what was there before.
“Do I think that there's something Labour might do there? Yes. I just don't think it's going to be as straightforward as that they'll just reimpose everything.
“I think they'll look at it in the round. That to me, is the sensible thing to do and that's what they'll probably be advised to do rather than just try and go backwards.”
LTA versus annual allowance
Connor also discussed the annual allowance which is still in place.
She said the LTA was removed - according to the chancellor - in order to help people, specifically doctors, who might be incentivised to give up work because of the charges on their pension.
“There was a lot of noise a few years ago about doctors saying 'I don't particularly want to go back to work when I'm coming to retirement, because if I just do a little bit of work, I am suddenly hit with all these pension tax charges',” she said.
“The annual allowance charge is one people really don't like because it's when you're being charged tax on money you don't have.
“LTA charge is on money you have in the sense that you are paid some money and actually you have to give some of that back or some of that is retained to pay the tax.”
Connor explained that if an individual is subject to an income tax charge of 70 per cent, they may be unhappy, but it essentially means they just get a smaller income.
It doesn't mean that someone is charging money for a thing they haven't got and that’s the problem with the annual allowance.
