So, the pensions Lifetime Allowance (LTA) has been abolished in a surprise announcement in the recent Budget – or has it? Well, sort of.
Quite why a decision to abolish it, rather than increase the limit, was taken – presumably with professional advice – is still a mystery. By continuing to have the core legislation in place, this would allow the limit to be increased, perhaps with a collar to stop it being decreased by more than a certain margin in future. It would also allow flexibility in terms of professions such as senior NHS clinicians to have their own allowance – such legislation is entirely possible and has existed without issue in the past.
So how does this affect employers with high earners who have opted out, ceased membership, or reduced contributions to their workplace pensions and what action, if any, should they take?
The short answer is not much. The proposed abolition of the LTA does not actually take place until April 2024 although the interim charge for exceeding it reduces to zero.
Certainly, if an employer can identify those workers who are Eligible Jobholders and who had ceased membership of their workplace pension owing to the LTA, they could contact them and ask them whether they wish to rethink. Any such individual can now restart pension contributions from 06 April 2023 up to a maximum of £60,000 in the 2023/24 tax year, assuming they have pensionable income of an equal or larger value.
Any employers with both Excepted and Registered group life assurance schemes should not change any of the existing arrangements. Currently, there is a lack of clarity regarding the above changes and how they could work in practice.
The Finance Bill 2023 was published on 23 March 2023 https://bills.parliament.uk/bills/3435 and will be debated in Parliament before becoming the Finance Act 2023, i.e., the point at which these changes will become law.
This is unlikely to happen until after the Easter recess and so the full details are yet to be finalised.
We are currently talking to all our clients who have been affected by this and will work through the detail with them as it becomes clearer.
If you would like to talk to us about any of these issues and how they will affect your workplace benefits, please get in touch.
This document is solely for information purposes and nothing in this document is intended to constitute advice or a recommendation. You should not make any investment decisions based on its content.
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Source: HM Treasury, abrdn techzone and Royal London analysis March 2023