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LV= responds to Treasury discussion on Annual Allowance (AA) charges

Press release: 10/01/2011

  • New system is too complex and could reduce much needed pension benefits
  • Defined contribution schemes are unlikely to accrue benefits to warrant AA charge

Following LV='s official submission to the Treasury's consultation on options to meet high annual allowance charges from pension benefits, John Perks, LV= retirement solutions director, comments:

"We believe the proposal in its current form contains a number of weaknesses and is too complex. Any tax charges from exceeding the AA have always been settled by the individual outside of their pension schemes, and in our view this approach should continue. If the proposals are adopted as currently drafted we are concerned that the move to use pension benefits to pay an individual’s personal tax liability may lead to further short term raids on pension funds and create future issues.

"The Government is currently proposing individuals pay the first £2,000 to £6,000 of any AA tax charge from their current income. With any such limit you could get cases where an individual's AA tax liability only just exceeds the £6,000 upper limit. In our view a scheme should be able to refuse to pay the AA charge unless it is for a reasonable amount, to avoid all scheme members carrying the burden of well off individuals.

"One of the options in the document is that payment by the pension scheme of the AA charge could be delayed until the member takes their benefits – possibly years in the future. This approach would add significant complexity for DC schemes and is unnecessary as normally they will have sufficient liquidity to make such payments immediately. If the Government does press ahead with DC schemes having to meet AA tax charges we would favour a much simpler approach whereby the DC scheme, following instructions from the member, would pay the money to HMRC as soon as the investments were cashed in to meet the charge.

"In general terms, with defined contribution (DC) schemes we feel the case against the Government's proposals is even stronger as it is much less likely that a member of a DC scheme (as opposed a defined benefit scheme) would inadvertently make a contribution and accrue benefits of the size that would trigger an AA tax charge."

About LV=

LV= is a registered trademark of Liverpool Victoria Friendly Society Limited (LVFS) and a trading style of the Liverpool Victoria group of companies.

LV= employs around 4,000 people, serves over 4 million customers and members, and manages around £7.9bn (as at 30 September 2010) on their behalf, via LV= Asset Management (LVAM). We are also the UK's largest friendly society and a leading mutual financial services provider.