A number of advisers have renewed calls to scrap the lifetime allowance due to the complexity of the rules and the fact it causes a “double hurdle” for pension savers.
In a poll of 75 advisers by pension provider Curtis Banks, 83 per cent said the lifetime allowance should be abolished as the rules are too complex for savers to understand with more breaches occurring each year as a result.
According to official figures, in the 2011/12 tax year there were 940 cases of lifetime allowance breaches, with the total value of the charges standing at £36m.
This compares to 4,550 breaches in 2017/18, the latest data available, with a total value of £185m.
After being introduced in April 2006 at £1.5m, the lifetime allowance grew to £1.8m in 2012 but was then cut to £1m. Since then it has edged up in line with inflation.
For the 2020/21 tax year, the lifetime allowance stands at £1,073,100, up from £1,055,000 in the previous year.
A number of advisers believe scrapping the lifetime allowance, which is the overall limit of tax privileged pension funds an individual can accrue during their lifetime, would solve a lot of problems and simplify the pension tax system.
John Waldie, managing director of Atkins Ferrie Wealth Management, said the lifetime allowance was a particular problem for the general public as people do not understand how it works.
Mr Waldie said: “For the public it is a nightmare as everyone who retires gets a questionnaire from their pension company asking how much they have used of their lifetime allowance and when.
“Almost all of the public haven’t a clue how to fill it in properly and most don’t have a financial adviser to help and so I suspect that most fill it out incorrectly and, in cases where exceeding the allowance is possible, either don’t pay the charge or inadvertently pay too much.”
Meanwhile Krupesh Kotecha, financial planner at Balance Wealth Planning, argued the lifetime allowance in its current form dis-incentivised people from topping up their pension pot.
He said: “When it comes to pensions, the simpler the better. Having a cap of £1m is not that much these days and it certainly dis-incentivises people from saving.”