PLSA 2019: ‘Unintended consequences’ of adding complexity when solving AA/LTA problem

There is a growing bank of evidence of increased complexity being generated by the attempts to resolve the annual allowance (AA) and lifetime allowance (LTA) challenges, West Midlands Pension Fund director of pensions Rachel Brothwood has warned.

Speaking at the PLSA Annual Conference today, 17 October, Brothwood highlighted that its scheme design has a 50/50 section where members pay half the contribution and they get half the benefit, to assist members that have been affected by the allowances limits, as the West Midlands Pension Fund has seen a six fold increase in the number of people affected, she added.

This 50/50 was one of the proposals first put forward as a solution to the NHS scheme, and that “was quickly followed up by a revised consultation, which introduced the concept of recycling contributions, which is effectively paying a cash salary supplement in lieu of pensions”, Brothwood stated.

“We are starting to see an interesting use of scheme design but I do think we need to stop and think whether this is the right way forward or are we introducing more complexity for what is fundamentally a tax system problem,” she added.

“There are some unintended consequences, a growing bank of evidence. There are some mixed and challenging messages going out to savers, and it is not doing the reputation of the pensions industry particularly well. It is impacting work choices and I do think we need to think about whether it is about tweaking the system or if wider change is needed?”

A poll of conference attendees found 78 per cent predicted that there would be radical change to the allowances in the future, such as flat rate tax relief, compared to 17 per cent expecting the annual allowance changing to a fixed lower amount and the lifetime allowance being removed.

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