Time to take politics out of pensions

I will be celebrating 10 years at AJ Bell in a couple of months’ time. When I joined, pension freedoms had just been announced and it was all hands on deck to prepare for the huge changes needed. Nearly a decade on, it feels like we’re there again with the abolition of the lifetime allowance.

One thing that hasn’t changed in all this time though, is the evident need for an independent pension commission to stop the constant changes to pensions at the whim of politicians. This is something we have called for many times over the years, and as I look at the latest draft legislation and work through the implications shaking my head, it is more relevant than ever.

Standing up and announcing the surprise abolition of the lifetime allowance is a great soundbite for a Chancellor. Largely done to stop senior doctors leaving the NHS in droves (as working simply didn’t pay given the combined impact of the annual allowance and lifetime allowance tax charges), it looks very much like a hospital pass to HMRC to then sort out the detail. And none of this was helped by Labour’s immediate reaction to say they would reinstate the lifetime allowance if elected.

Labour may have gone quiet on this more recently, but I do wonder if government would be in such a rush to get the changes through if there wasn’t an impending election.

Minimal changes were made for the start of this (2023/24) tax year. All the benefit crystallisation tests remain, just there is no lifetime allowance charge at the end of it. From a consumer point of view, that is all that matters.

So, you could argue that the 100 pages of the Finance Bill currently going through parliament to implement the removal of the lifetime allowance are largely unnecessary. No one would care if the lifetime allowance existed as long as the lifetime allowance charge didn’t. But it would be very easy to re-instate. So, it’s down to politics we must go through all this pain.

And it is very painful, and clearly a rushed job with legislation drafted without a full understanding of the implications. For example, anyone who is 75 before 6 April 2024 who hasn’t taken all their PCLS will have the available amount reduced due to the age 75 test, unless they apply for a transitional certificate. There’s also an incentive to transfer overseas to double your PCLS in some circumstances. If changes weren’t made under such time pressure, government could have consulted thoroughly with the industry and iron things like this out before it becomes law. As it stands the Finance Bill contains a provision for changes to be made via secondary legislation at any time up to April 2026. So, we have uncertainty for a couple of years yet, whilst things are tidied up, and loopholes closed.

The constant changes and ambiguity aren’t good for anyone’s health – the remedy would be to take these decisions out of politician’s hands.