In April, the Lifetime Allowance (LTA) will be reduced once again to a new figure of £1m. The recent trend in reducing the LTA will leave us with a messy legacy of no fewer than seven different types of protection.
At the same time, an aggressive Treasury determination to restrict pensions tax relief for higher earners has seen the Annual Allowance reduced to a fraction of its original value. Additionally, there will be the additional complication of tapered relief for high earners that many believe is all but impossible to implement. After just 10 years, the principal objective behind the introduction of the current system – simplification – has been lost in a maze of retrospective tinkering.
In 2004, whilst in opposition, George Osborne claimed that “there is a curious and perverse incentive in the very concept of a lifetime allowance”. This antagonism has been transferred into government, and next month’s Budget may see the end of all tax relief for contributions to registered pensions arrangements.
However, whatever may – or may not – happen next month, it is already clear that our existing pensions tax regime is now broken to the point where radical reform is necessary. We can only hope that this happens soon, and that any future regime enjoys the stability necessary for a new regime to work properly.