HMRC has been urged to provide clarification on the Lifetime Allowance (LTA) abolition rules by October, after the Association of Consulting Actuaries (ACA) warned that failure to do so could result in a number of unintended consequences.

Industry experts previously raised concerns over the potentially “detrimental outcome” of the government's plans to remove the LTA, as HMRC was told that the changes threaten to “backtrack” on the ability to inherit pension pots tax-free.

Further detail is expected to follow in the full regulation, and HMRC also clarified at the time that it "look[ed] forward to working with stakeholders over the coming weeks to help craft the legislation which will ensure that our historical pensions tax cut delivers the right results for savers and the economy.”

However, the ACA said that whilst it was grateful that HMRC have confirmed that this was not the intention, and the draft legislation will be changed, it is “really important” that key policy decisions have been made by October to avoid unintended outcomes.

In particular, the ACA warned that members could be forced to make decisions without properly knowing all relevant facts, as there is a statutory requirement for schemes to send out information at least four months ahead of the retirement date for savers, with many schemes aiming to send this out six months in advance.

The ACA highlighted this timescale as indication of how long the government believes that a member needs in order to be able to properly consider their options, arguing that it is key that the industry has a final decision on the intention for taxed defined benefit (DB) cash and transition as changes to this could have implications for many members.

It also warned that further delays in providing clarification could bring additional costs to schemes and put pressure on scarce resources.

The ACA explained that system changes take months, which will impose additional costs from manual workarounds and queries from members where information is corrected by addenda.

In addition to this, the ACA noted that manual calculations are likely to be required by expert staff for members impacted by the new allowances, which will again impose additional cost for work that with more time could be automated, so duplication of effort.

However, the ACA acknowledged that the policy intent is to achieve the changes very quickly.

Given this, it queried whether using a mid-tax year date such as 1 October 2024 would be practical in law-making, to give more time for proper steps including extra stages of consultation.

ACA Chair, Steven Taylor, commented: “The speed of the consultation, the fact that comments will have been gathered while some elements are likely to change or may not have yet been published, means that the industry will not have been able to consider the whole picture - let alone our usual measured line by line checks - so errors are likely to slip through.

"We expect that some aspects of the legislation will not operate as intended – but that this will only be discovered when the measures are put into practice.

“And changes might feed through by default in unintended ways to change the operation of scheme rules. At A-day this was carefully controlled by temporary regulations under tax law and Pensions Act.”

The ACA also wrote to HMRC covering some thoughts on transition and disclosure where the intended policy has yet to be published.

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