LTA 'patch and mend' job begins as Finance Bill 2024 receives Royal Assent

The Finance Bill 2023/24, which includes legislation to complete the abolition of the lifetime allowance (LTA), has received Royal Assent, although LCP has warned that it will be "quite some time" before the new regime has been assimilated by the industry.

Chancellor, Jeremy Hunt, previously confirmed plans to abolish the LTA as part of his 2023 Spring Budget, in a move that aimed to help ensure that high skilled individuals, such as NHS clinicians, are not disincentivised from remaining in the workforce.

While the "sting" of the Lifetime Allowance charge for those with high pensions wealth has already been removed from 6 April 2023, LCP partner, David Everett, explained that this latest bill aims to complete the job by removing all references to the LTA from the "fiendishly complex and extensive pensions tax law".

However, Everett warned that "this has been a rushed job with errors and omissions coming to light, resulting in HMRC having to now engage in a patch and mend job through regulations that are promised and will hopefully be delivered in the limited time before the new regime comes into operation on 6 April 2024".

Indeed, while HMRC has shared further guidance on the LTA changes, industry experts have warned that "unanswered questions" remain, with much work to be done before the latest pensions tax changes reach their ultimate destination on 6 April.

“The focus now turns to pensions administrators who have next to no time to adjust their systems, processes and member communications so that for those benefits taken from 6 April 2024, compliance is by reference to the new law that is focussed on lump sum checks," Everett stated.

“And for a narrow group of pension savers that have started to take benefits, but have more to come, they will need to decide before taking any more benefits whether they should apply for a special certificate that reflects the lump sums they have actually taken or rely on HMRC’s broad brush approach to estimating them."

Everett also emphasised that, with all the detailed technical changes being made, given that the LTA was one of the cornerstones of the pensions tax regime that has operated for 18 years, it will be quite some time before this new regime has been assimilated by the pensions industry.

“The worry is that despite the significant burden of introducing this new regime it may yet prove to be short lived, as a change of government could well see some kind of reinstatement of the LTA," he added.

Indeed, the Labour Party previously suggested that it would look to reinstate the pensions LTA, if elected, shortly after Hunt announced plans to scrap the tax, prompting concerns over the uncertainty facing savers.

However, industry experts warned that reinstating the LTA would be “far from straightforward", arguing that the Labour party may need to take steps to make sure that large numbers of people do not rush to tap into their pensions to avoid tax charges.

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