The abolition of the lifetime allowance is due to become law on 6 April 2024, after a year of transition, during which time the charges for those who breached the allowance were scrapped but the allowance remained in place, officially speaking.
This is good news for pension investors, particularly in light of the upcoming general election – which could happen as early as the spring or summer. As we have pointed out, although Labour has pledged to reinstate the lifetime allowance, the practicalities of doing so are not straightforward, and “the abolition hitting the statute books offers a bit more security, because it will then take further legislation to reverse the measures in the Finance Bill”, says Gary Smith, partner in financial planning at Evelyn Partners.
But the abolition itself is not a perfect policy. The pensions tax-free lump sum, which normally allows people to take a quarter of their pension pot tax-free, is now capped at £268,275 – a quarter of £1,073,100, the level at which the lifetime allowance was previously set. This may not seem like a massive problem in the short term, but there are no provisions for this limit to increase over time, so its real value will shrink quickly.