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Budget 2015 reaction: Lifetime Allowance reduction ‘unfair and unwise’

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A pensions expert has branded chancellor George Osborne’s announcement that the pensions Lifetime Allowance (LTA) will be cut from £1.25 million to £1 million “unfair, unnecessary and unwise”.

Barnett Waddingham senior consultant Malcolm McLean said: “The concept of having a lifetime limit is outdated and unnecessary."

He added: “The existence of the LTA and the regular monitoring against it overly complicates pension saving at a time when strenuous efforts are being made through auto-enrolment and other measures to encourage saving into a private pension.”

Xerox head of trustee services at Buck Consultants David Piltz warned the reduction of the LTA risks making pension savings “unattractive to medium- to high-earners”, and could “disenfranchise those senior individuals who make decisions for UK pensions for their employees”.

In yesterday’s Budget, Osborne also announced the LTA will be indexed from 2018 and confirmed that he will be extending pensions freedoms, allowing people over 55 to trade annuities in for cash.

The National Association of Pension Funds (NAPF) director of external affairs Graham Vidler said the announcement must not “distract us from or undermine the Freedom & Choice pension reforms” coming in on 6 April.

He added: “The government must make sure this doesn't divert focus or resource from Pension Wise, damage the broader annuity market, or slow down the development of a much-needed market in retirement solutions for those looking to make use of Freedom and Choice from next month".

Aon Hewitt senior partner Kevin Wesbroom predicted the changes made to pension freedoms may "herald a new era for employers and the benefits packages offered to employees".

He added: “Forward-thinking employers may find that such an approach enables them to appeal to all of the demographics in their workforce, and they can design incentives that appeal to their 25-year-olds and their 65-year-olds. With suitable technology support and member guidance and education, this need not increase costs but will redistribute the existing spend across the broader workforce.”