Your pension lifetime allowance refers to the amount you are allowed to have in your retirement pot before taxes become payable. The current threshold at which tax becomes payable is PS1,073,100. In March, Rishi Sunak, Chancellor of Exchequer, announced that the threshold would be frozen for 2026. This means many could get dragged into tax net.
Any withdrawals made after your lifetime allowance is exhausted attract additional tax
All income payments will be subject to 25 percent additional tax, while withdrawals of lump sums are subjected to a 55 percent penalty.
Julian Jessop is an economist with the Institute of Economic Affairs. He tells Express.co.uk the threshold for lifetime allowance makes it more complicated to plan pensions and should therefore be eliminated.
He stated that he believed they should eliminate it. It is an unneeded complication, which makes planning your pension very complicated. Tax advisers and accountants are the ones who truly benefit.
“I would eliminate that. You can raise more money by reducing the amount of your tax-free lump sum when you retire.
You could also get rid of higher tax relief. It seems strange that taxpayers with higher tax rates get less tax relief than those who are poorer. This is a problem that can be corrected.
The lifetime allowance is a negative feature of our tax system and should be eliminated.
This week’s biggest controversy in pensions was caused by the decision of the Government to end the triple lock.
Although the Conservative Party promised to maintain it in their 2019 manifesto however, the average earnings numbers have been distorted by the pandemic, so pensions could have experienced an 8.8 percent rise.
This was unfair because the cost of the pandemic was borne by younger workers.
Therese coffey, Work and Pensions Secretary told MPs that there was an “irregular statistic spike in earnings” during the time the pension rate was set. This is due to the recovery of the economy from 2020’s economic lockdowns.
Elle added that “Setting aside earnings, which is only temporary for one year; this means that we can and will use the triple lock as normal from next year for this Parliament in accordance with our manifesto promise.”
The Government says it will revert to triple lock but Mr Jessop is concerned that the policy may not be sustainable in the long-term.
He said, “The long-term future of the triple locks does require a review because we know that there will be enormous pressure on public finances due to an ageing population.
The current design of triple locks means that it cannot be sustained in its current form. When the economy is healthy, pensioners enjoy all of the benefits but not the disadvantages.
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So what do you get? A ratchet effect in which pension spending takes a larger and greater share of total spending.
“I would probably keep it until we find a better way to solve the problem.”
Before the announcement, speculation was swirling about how exactly the government would alter the triple lock.
Johnson, Prime Minister Johnson, and his associates eventually chose a measure similar to a double lock – it completely stripped out the average earnings while increasing the pension according to inflation or by 2.5%.
However, Mr Jessop believes that the government should have employed a new median earnings figure with all the effects of the pandemic.
He stated that he believed it was appropriate for them to modify the triple lock this year. However, I wouldn’t do it in the same way they did, and I would still have some link to the average earnings.
“I would use some underlying measure in order to be more consistent and coherent with the manifesto.
The pension is expected to reach a comparable place to inflation, which will likely be around three to four percent.
Publited at Sun, 12 September 2021 @ 06:00 – 0000