Why you may ask? Some things will be obvious such as the reduction in the lifetime allowance and the multiple annual allowance levels we have to deal with but some issues are just knock on effects of this.
At A-day we were led to believe that the lifetime allowance and annual allowance would go up each year or at least remain the same. OK, so there were no promises but the legislation was written in such a way that benefit crystallisation tests and pension commencement lump sum calculations were relatively simple as long as the lifetime allowance increased.
The subsequent drops in the lifetime allowance has meant more layers of guidance and legislation to deal with the quirks introduced because of it. What hasn’t happened is any type of tidying up exercise to ensure that it does actually work. I know that time is money and that the Government has a lot on its plate but it caused all these issues by using pensions as a way to raise cash so it should at least ensure that the legislation works in the right way. More importantly in a way that makes sense and doesn’t disadvantage people unnecessarily.
The pension freedoms have made a lot of this worse because it means that the many more people will be phasing their benefits rather than taking all their pension commencement lump sum and buying an annuity. This means more benefit crystallisation events, which in turn means a greater risk of changing legislation having an impact on them.
For example the money purchase annual allowance that was brought in to stop those who flexibly access their benefits paying more contributions to get more tax relief and pension commencement lump sum.
I struggle to really see the point of it, but even more so now the level has been dropped so significantly it would probably be easier to just cease contributions entirely. The time and hassle involved with it all seem counterproductive, but I guess as with all of these things it isn’t really the Government that are dealing with the end client and calculations.
I can only live in hope that we can get at least some of this sorted before more changes occur.
Claire Trott, head of pensions strategy, Technical Connection Ltd