Enquiries spike ahead of lifetime allowance change
As the deadline for members to take action looms, more savers are realising they might be affected by the planned reduction to the lifetime allowance, leading to a spike in customer enquiries at provider Fidelity.
Lifetime allowance is the amount a person can save in pension benefit before they trigger an extra tax charge. Chancellor George Osborne last year announced the allowance would be reduced to £1m from £1.25m as of April 6 this year.
If the government is going to level the input tax regime I hope they revisit the lifetime and annual taxes
Call volumes increased fourfold between October and the end of December 2016 from members wanting to know about the lifetime allowance, according to the provider.
In response to customer demand, Fidelity has issued a new guide. It outlines who is likely to be affected by the change, how to calculate the value of an individual’s pension and what can be done to minimise members’ tax bills.
Carolyn Jones, head of corporate proposition at Fidelity, said the company was working to raise awareness of the change, highlighting to people that “it’s not a rich man’s problem. It really is starting to come down”.
She added: “Our view is lifetime allowance for defined contribution plans is a little perverse, now that it’s so low. As people pay less and less into their pension plan, lifetime allowance will become more of an irrelevance.”
People are beginning to take tax-free cash to prevent themselves going over the allowance, Jones said, adding that this had not been seen before last year.
Raising awareness
Alan Pickering, chair of professional trustee company Bestrustees, said schemes were preparing for the change in different ways, with one end of the spectrum focusing on raising awareness and the other on providing solutions.
“If the government is going to level the input tax regime I hope they revisit the lifetime and annual taxes,” he said, adding that these taxes had an adverse effect on “teachers and nurses”.
“Each of my schemes are having to decide how much help to give those who might be affected by the allowance. Some are focusing on ensuring there is maximum awareness, whereas some are spending money on seminars and in-house guidance,” he said.
Andy Cheseldine, partner at consultancy LCP, said many schemes were contacting members in danger of going over the limit and offering them a cash allowance in lieu of any benefit that would have been paid into their pot.
“For the moment, what employers are doing is saying, ‘If you want you’ll get a cash allowance’,” he said.
High earners hit by tapered annual allowance
From April, high earners will additionally see a tapered reduction in annual allowance if their income – including the value of any pension contributions – is more than £150,000 and more than £110,000 excluding pension contributions. For those in this bracket, the annual allowance is reduced by £1 for every £2 their income exceeds £150,000, by up to £30,000.
Schemes are also promoting the fixed and individual protections to members, according to Lucy Dunbar, senior associate at law firm Sackers. These allow qualifying members to retain the current lifetime allowance of £1.25m, but in some cases they will be required to stop accruing pension benefit.
“A lot of schemes are following what HM Revenue & Customs suggested and making sure members are aware [lifetime allowance] is reducing but, more importantly, if anyone does need to register for protection, those members do take action before April 2016.”