The Association of Consulting Actuaries (ACA) has responded to the His Majesty’s Revenue and Customs (HMRC) consultation on Abolishing the Pensions Lifetime allowance (LTA) and warned of several negative consequences that could arise.
The ACA said it believes that October 2023 is a key point for the practicality of delivering the measure.
“By then it is really important that key policy decisions have been made,” the ACA said.
“Core draft legislation has been released reflecting those decisions including any new (currently missing) legislation and revision where the extent release is out of line with policy, with a window for further consultation to make sure these are fit for purpose,” the ACA noted.
The ACA put out a response listing some of the consequences which could arise.
“Members could be forced to make decisions ahead of properly knowing all relevant facts,” the ACA said.
“It is key that the industry has a final decision on the intention for taxed defined benefit (DB) cash and transition as changes to this could have implications for many members.”
Another issue is that there could be additional costs to schemes and pressure on scarce resources, the ACA added.
“There is unlikely to be time to update processes and letters,” the ACA said.
And a third issue could be various unintended outcomes out of line with policy intent.
Steve Taylor, chairman of the ACA, said: “The speed of the consultation, the fact that comments will have been gathered while some elements are likely to change or may not have yet been published means that the industry will not have been able to consider the whole picture – let alone our usual measured line by line checks – so errors are likely to slip through.
“We expect that some aspects of the legislation will not operate as intended – but that this will only be discovered when the measures are put into practice.”
The ACA said it understands the policy intent is to achieve the changes very quickly.
“Given the above challenges we wonder (without testing this out) whether using a mid-tax year date such as 1 October 2024 would be practical in law-making, to give more time for proper steps including extra stages of consultation.”
The ACA has also written to HMRC covering some thoughts on transition and disclosure where the intended policy has yet to be published.
In July, the ACA said it pointed out that “currently DB schemes broadly only allow members to commute up to 25% of their benefits at retirement for a cash sum, alongside pension; lump sums beyond this are (unless a member has used up their lifetime allowance) unauthorised benefits attracting tax as much as 55% and so generally are not offered”.
“The draft legislation released in July would significantly change this, with no limits on the size of PCLS, only a limit on the amount that is tax free,” it continued.