scrumpyjack wrote:The problem is that the whole pensions and tax relief system has evolved as a complete mess without any planning to start with. The existence of defined benefit schemes make it extremely difficult to have rules and limits that are fair both to them and to defined contribution schemes. Change is difficult because all political parties think pensions are ‘a good thing’.
When I was young, and the top rate of tax on ‘earned’ income was 83% (98% on investment income) (and that kicked in at £2,000 of taxable income as I recall) and there was no limit on contributions it made sense to stuff as much as possible into your pension. Life expectancy post retirement, when state pensions were brought in, was 7 years so that was affordable. Most jobs, not just civil service ones, had defined benefit pensions which the state subsequently and retrospectively ruled had to be inflation protected, thus bankrupting many businesses over the years!
Ideally there should be sufficient tax incentive to save for your pension so you are not a burden to the state but it should not be more than that. So huge indexed linked pensions (whether civil service or private) are not in the wider interests of the country and should not be supported by tax reliefs IMO. But getting to that position from where we are is impossible and the LTA is probably the least bad way of having some limits.
When it was introduced in 2006 the LTA was £1,500,000 which then rose by 2010 to £1,800,000 and didn't really affect that many people. At that time the annual allowances were much larger £215,000 in 2006 rising to £250,0000 in 2010 so there was a good case for stopping the really rich from getting lots of tax relief by putting those really large amounts in each year and building up multi-million pound pensions which is why the LTA was introduced.
The Coalition and Conservative governments cut the annual allowance drastically and even , for larger earners, introduced a taper to cut it even further. Which although it introduced some problems, particularly with the taper, didn't cause most people too many problems. However they got greedy and cut the lifetime allowance as well in what was purely a revenue raising exercise. There really wan't any need, apart from raising revenue, for them to cut the LTA limit if it was working when people were allowed to put in £250,000 per year it would still have worked when people were restricted to putting in £40,000 a year. Even with £40,000 a year annual allowance I can still see a need for some lifetime limit but it would simplify things a lot if it was raised back to £1,800,000 (which then rose by inflation each year). It would hit far fewer people solving a lot of the problems with doctors etc retiring early because of the limit and get rid of all the complications caused by the various protections provided as the LTA was lowered. Of course the government would lose all the extra revenue they gain from having a really low LTA - which is probably why it won't happen.