Thank goodness for that!
This was possibly the most ill-conceived tax I have seen introduced in my lifetime and I have been encouraging clients to continue their funding, firmly in the belief that common sense would prevail, and it would eventually go.
The LTA was much misunderstood, it led to poor decision making and ultimately led to poor outcomes. I know of people who stopped funding their pensions as they approached this limit and some who even declined employer contributions into their schemes.
It was also a tax that penalised those who adopted a sensible investment strategy. I have had clients ask whether they should move their pension fund into cash once they hit the limit, so as not to incur a tax charge by benefitting from further investment growth? Pension funds are invested in shares and bonds, a vital driver of the economy, a tax that discourages this behaviour is a very ill-thought-out tax indeed.
When it was introduced, it was expected that it would be successful businesspeople and the wealthy in general who would be affected but, because of the incredibly generous nature of Public Sector pension schemes, it also hit doctors, consultants, senior police officers and senior military ranks; the law of unintended consequences at work.
Let’s be clear, the ONLY reason this tax has been rescinded is because of the impact on highly valued Public Sector employees, and it is for this reason that opposition parties are unlikely to oppose it in the way they would if it were just the ‘wealthy’ that would be seen to benefit.
It’s tempting to say, ‘well this won’t affect many people’ but, over time, fiscal drag (the freezing of allowances) would have seen more and more people dragged into the net and I am glad that it is gone.
When/if Labour win the next General Election, it is possible that they could reinstate this tax and this means I will be having conversations with clients over the next 18 months about whether there is now a window of opportunity for them to crystallise their benefits to reduce tax in case a reinstatement was to happen.
I have yet to fully digest the implications of this unexpected change so watch this space.
I hope you have found this helpful but, if you have any questions about this piece or any other finance related matter, please do not hesitate to get in touch.
Yours sincerely,
Graham Ponting CFP Chartered MCSI
Managing Partner
