hiriskpaul wrote:All true, but the LTA charge cancels out tax relief, so you are no worse off financially than you would have been had you not made contributions. At least that is the idea behind the LTA. In practice, the outcome varies depending on the amount of up front tax relief, NI relief, employer's contribution and the tax paid on withdrawals. However, most people paying the LTA charge are likely to have been able to claim higher rate tax relief on some of their contributions.
You're right on "cancels out", but only for the the one set of assumptions you are working to: higher rate tax that covers
all contributions, and lower (or zero) rate tax in retirement. These may or may not apply to "most people", but the LTA charge can certainly be punitive if you fall outside these limited criteria; for example if you could be a higher rate taxpayer in retirement, or if you made pension contributions while in basic rate tax.
I fall into both these latter camps (the LTA didn't exist
at all for much of my pension saving time). For me then, it's definitely punitive. If hit by the LTA, I would have been better off not making those pension contributions when I did. But they cannot be undone.
The culprit in this case is less the
existence of the LTA than it is its
repeated large-scale reductions. The
idea behind the LTA is one thing; its
actualisation is another.