On the go: The latest data from the Office for National Statistics shows the consumer price index of inflation grew by 1.7 per cent in September 2019, with impacts on the state pension and the lifetime allowance.
The new state pension will increase by 4 per cent to £175.35 a week from April 2020, due to the reported average earnings for the three months to July 2019 being higher than either inflation or 2.5 per cent.
Andrew Tully, technical director at Canada Life, commented: “This is the third-highest increase in the new state pension since the triple lock guarantee was introduced, and the third time the state pension has been increased by wage growth.”
He added: “This increase does cast a spotlight on the long-term sustainability of the triple lock, although the government has committed to it in this parliament or until 2022, whichever comes sooner.”
The CPI rise also impacts the LTA for pensions tax relief, which increases every April by the CPI inflation rate to September of the previous year.
Steven Cameron, pensions director at Aegon, said: “This means we expect the LTA to increase from £1,055,000 to around £1,075,000 in April 2020 (subject to government confirmation and rounding to the nearest £5,000).”
He added: “Although any increase is welcome, these rises are in line with price, not earnings inflation. With wage growth remaining much higher than inflation, this means in earnings terms the LTA is becoming less and less generous, leaving more individuals – and not just particularly high earners – at serious risk of breaching the limit.
“Recent figures show the total value of LTA charges paid by schemes in 2017-18 was £185m, a 28.5 per cent increase from 2016-17.”
The effect of pension allowances – both the LTA and the separate annual allowances – has been in the spotlight recently, with highly paid professionals in the NHS pension scheme refusing extra work or even retiring early to avoid big tax bills associated with their pensions.
Mr Cameron urged the government “to carry out a fundamental review of these allowances, as recommended recently by the Office of Tax Simplification”.
The LTA was introduced in April 2006 as a measure to restrict the overall value of pension savings. It was set at £1.5m in the 2006-07 tax year and increased annually to a high of £1.8m in 2010-12. The allowance has been reduced over subsequent tax years to the current £1.055m.
The latest HM Revenue & Customs data shows the total tax take from the LTA charge has increased by more than 1,323 per cent to £185m in 2017-18 from £13m in 2006-07.
The number of charges levied has increased by 499 per cent to 4,550 in the 2017-18 tax year from 760 in 2006-07 .
