In response to the Chancellor’s Budget announcement that it will reduce the pension taxation Lifetime Allowance (LTA) from £1.25m to £1m, Andy Masters, head of savings and wealth management at KPMG said, “Constantly lowering the LTA disincentives individuals to save for their retirement through a pension. It seems at odds with the encouragement to save being driven through the workplace with auto-enrolment as an increasing proportion of customers will approach the limit and have to make decisions about what action to take.
“£1m might sound a significant amount, but it only buys a circa £30,000 pension and is typically what many middle income earners are likely to achieve by the end of their career. While we welcome the decision to index the LTA from 2018, it should be noted that it is expected to be 15 years before the LTA gets back to £1.25m, based on 2% CPI inflation.
“We would like to see innovation in the alternative solutions that are offered, particularly for middle income earners, to continue incentivising individuals to save for retirement. For example, the answer may well be to put money into an ISA, with employers supporting their employees by offering a ‘corporate’ ISA with salary sacrifice and employer contributions.
“Based on today’s announcements of the first £1,000 of savings being tax free, flexible ISAs and the ‘Help-to-Buy’ ISA will can expect to see more savers putting their money in these as opposed to pensions.”
Simon Chan, KPMG Corporate Communications
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KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.