HM Treasury is to review the pensions lifetime allowance, a report has suggested, amid concerns it may be forcing people to retire early.

The lifetime allowance currently stands at £1,073,100 and will stay at this level until 2025/26 under existing plans.

Commenting on the report in the Sunday Telegraph, AJ Bell head of retirement policy Tom Selby said “it would be good news if the Treasury finally decides to review the impact the lifetime allowance is having not just on UK savers but the wider economy”.

“The lifetime allowance has been at the heart of the current NHS crisis, with thousands of staff forced to retire early or risk being hit with a punitive tax bill for breaching the allowance. While the Treasury has proposed a specific solution for the NHS scheme, the lifetime allowance also presents wider challenges. In defined contribution (DC) schemes, the lifetime allowance risks punishing those who take investment risk and enjoy long-term growth as a result of taking that risk. This investment disincentive runs counter to this government’s clearly stated focus on boosting economic growth.

“It also caps people’s retirement saving ambitions at a relatively low level, currently standing at around 60% of the lifetime allowance that was in place in 2010/11 – and that’s before taking account of the impact of inflation and earnings growth. The lifetime allowance also makes the pension tax rules people interact with unnecessarily complicated, adding to an already confusing picture. If we want people to save more for retirement, we need to make the rules as simple as possible. There are different ways you could do this. Increasing the lifetime allowance would clearly help, but there is an argument for scrapping it altogether – certainly in DC – and controlling pension tax costs with a single annual allowance. This would leave people freer to invest their pension in assets which match their appetite for risk, rather than being distracted by the impact a lifetime allowance tax charge might have. It would also help the government make good on its aim to simplify the tax system.”

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