Stop Lifetime Allowance Cuts, Says Former Pensions Minister

One of the UK’s most senior authorities on the subject has lashed out at on-going lifetime allowance cuts imposed by the government, suggesting that all such actions are proving not only counterproductive, but potentially dangerous. Former Pensions Minister Ros Altmann launched a fierce tirade at on-going government-imposed cuts, labelling the lifetime allowance scheme as a whole “illogical, unfair and undermining of long-term pension investing.”

Despite having been capped at £1.8 million in 2011, the lifetime allowance was more recently reduced to just £1 million. Not only has this thrown up a world of issues and problems for pension savers with defined contribution schemes, but is at the same time doing direct harm to many key public services, including the NHS.

Having recently taken up position as a columnist for Money Marketing, Altmann stated that there are serious issues beyond the most immediately obvious that must be taken into account by the government.

“Huge numbers of doctors are quitting general practice in their 50s, partly due to the lower allowance and the wish to avoid the potential 55 per cent pension charge. It is vital to take these issues seriously in our ageing population,” she warned.

“Surely we should be incentivising the most experienced medical staff to keep working longer, not encouraging them to retire early by imposing draconian taxes on their pensions? The same can be said for the likes of surgeons, police chiefs, firefighters and head teachers. The lifetime allowance reductions are like a stealth tax on the most senior personnel.”

She spoke of the importance of the government taking the matter a little more seriously and considering the wider repercussions of on-going cuts. Specifically, she highlighted how the actions of the government are driving older, more experienced members of the workforce to retire at increasingly younger ages, rather than actively encouraging them to continue working for mutual benefit.

“The whole concept is just so illogical,” Altmann continued.

“Ever since it was introduced, I have argued it makes no sense to limit the amount built up in a DC pension. If annual contributions are capped, then arbitrarily limiting the total fund that can be built up over the years amounts to a penalty on good investment performance. It particularly punishes pension investors if their fund performs too well, which goes against the whole ethos of long-term investing,”

“Surely we want people to build up as much as they can?

Altmann, like many others in similar positions and huge swathes of the population alike are once again calling on the government to immediately and radically rethink its strategy on pensions, given the way in which the damage being caused by recent actions is spreading so far and wide. Ever-increasing longevity and a willingness/intent to continue working on the part of so many key workers is something that should be embraced, rather than gradually eroded.

“We must not let our pension system impose stealth taxes on older workers and drive them out of the labour force,” Altmann concluded.

“Nor should we penalise people for achieving good investment returns. Pensions should be about rewarding loyal workers and encouraging long-term investment.”

If you think that you might be affected by the reduced lifetime allowance contact Haven IFA as our team will be happy to help you.