In the 2023 Spring Budget, the Chancellor of the Exchequer announced the abolition of the Lifetime Allowance (LTA). By removing the potential for additional charges if savers breached the current cap of £1.073 million, more people could be encouraged to stay in work and save for longer, building financial security.
This bold move was a very welcome step and something we had anticipated would simplify the pension system. However, we have concerns that the implementation of the regime designed to replace the LTA – which is due to come into effect from 6th April this year (2024) – may have some negative impacts on policyholders.
On the face of it, these reforms can look simple, with the removal of a cap making things easier to understand and administer. However, these changes are much more complex than expected. There have been many changes to the LTA over the years and various individual protections have been introduced at each stage. These interact with the freezing of the tax-free lump sum and the position of people who may have accessed some, but not all, of their pension benefits. This has inadvertently compounded the challenges for customers and those looking to administer pension schemes. The scale of these reforms has arguably surpassed HMRC’s own expectations.
While we’ve welcomed the opportunity to engage with HMRC on implementation, the industry has consistently raised concerns about the challenges of the changes and the lack of detail until late in the process. At this juncture, unresolved issues remain, and will continue until final regulations and full HMRC guidance are made available, which we understand will be later this year.
Due to delays in the finalising of regulations and the provision of guidance, many firms have been unable to ensure suitable training has taken place for all their staff and have been unable to properly update their systems and processes. While we appreciate the reassurances we've received from government on this matter, it still presents issues for customers in the form of potential disruption to the provision of pension information and payments in the early stages of the regime.
Many firms are proactively engaging with advisers and communicating with customers in order that they have access to the most current and relevant information. Firms are also working hard to avoid disruption, so that support and services are delivered within the appropriate timescales.
Customers most likely to be affected are those who wish to access benefits near the start of the new regime.
Our guidance to customers: 
- When seeking to access benefits, engage with their pension provider as soon as possible, to set out your position and understand your options;
- Consider taking professional advice around what to do next in order to make an informed decision; and
- Be aware of the repercussions of accepting default options.
As can be seen from the above, the removal of the LTA is a complex issue and the scale of this change cannot be underestimated. Notwithstanding this, customers should be aware that the industry’s priority is to work hard to help customers receive good outcomes and support them through the process.