Nick Griggs, head of corporate consulting at Barnett Waddingham says: “The cut in the lifetime allowance (LTA) is regrettable, but expected (given Lib Dems and Labour had already announced plans to do this, it was easier for Tories to make the cut).”  

It may make it difficult for many members of defined contribution schemes, who would not consider themselves high earners, to save enough to maintain their living standards in retirement. However, the reintroduction of inflation-linking from 2018 goes a little way to help those who would otherwise have butted up against the lifetime allowance in future, and it is fortunate that the Chancellor has left the annual allowance alone.  We hope the other parties toe the line on this one now the cut in LTA has been announced.  Employers with medium to high earners who may be affected by the cut in the LTA will be awaiting details of the new transitional protection regime.

“As previously announced, the Government has published a call for evidence on allowing pensioners to sell annuities for cash, subject to their marginal tax rate.  The Treasury hopes that institutional investors such as pension funds will be interested in purchasing second-hand annuities to hedge their liabilities.  However, interest will depend on the trustees’ assessment of the investment and how this fits in with the scheme’s funding and investment strategy.  While attractive pricing will clearly be a driver for schemes that are looking for long-term regular income streams, as a way of managing their risks second-hand annuities would only provide a rough form of matching for the scheme’s own pension commitments.  This is in contrast to purchasing a regular bulk annuity contract from an insurer where the scheme is explicitly removing the risks associated with its own liabilities, including the specific longevity risk of its members.

“The Chancellor has also announced a measure which will introduce a new income tax exemption for payments made when employers need to provide appropriate independent advice to employees as part of any employer-led transfer exercise from defined benefit (DB) to defined contribution (DC) pension schemes.  This is timed to tie in with the introduction of the new flexibilities on 6 April 2015.  The provision of advice is usually taxed as a benefit to the employee.  This will be a welcome easement for employers who are considering such exercises as a way of allowing DB members to access the new flexibilities while also managing their pension liabilities, and for employees who wish to take their pension flexibly.”