Lifetime Allowance Pension

• Increase in the Money Purchase Annual Allowance from £4,000 – £10,000
• Increase in the Annual Allowance from £40,000 – £60,000
• Removal of the Lifetime Allowance
• Tax-free cash will still remain at 25% of an individual’s Lifetime Allowance
  • The current rate is £1,073,100 @ 25% = £268,275
  • Or 25% of any protection scheme they may have.
• The adjusted income threshold moves from £240,000 to £260,000 for higher earners.

Depending on your individual circumstances, this could be an excellent time to move funds into pensions and maximise tax relief. It’s now a great time to speak to an adviser about what options are available to you that align to your financial goals.

The tax-free cash will still remain at 25% of an individual’s Lifetime Allowance.

• The current rate is £1,073,100 @ 25% = £268,275
• Or 25% of any protection scheme they may have.

People who have crystalised a pension this year and paid a charge on the excess amount above the lifetime allowance are likely to wonder if they can apply for any kind of rebate, but unfortunately, based on previous taxation changes, this will be unlikely. Speak to an adviser to get full confirmation on what is available to you.

If you have taken part or all of your tax-free cash from your pension you face no restrictions on future contributions other than the new £60,000 Annual Allowance.

If you have taken any income from your pension you were restricted to the Money Purchase Annual Allowance of £4,000 on annual contributions

This has increased to £10,000.

Some older pensions policies don’t have the flexibilities to allow you to drawdown on the funds and can have higher levels of ongoing charges.

By reviewing and potentially moving funds together into one place, you could reduce fees and administration, select the right funds to meet your needs and ensure that any unused funds can be earmarked for your beneficiaries.

However combining pensions might not always be the best solution, a review of the benefits and fees would all need to be considered when reviewing the value of a pension in relation to your needs. You may require the assistance of an independent financial adviser to correctly calculate your complex pension affairs.

Opposing parties may wish to reinstate the lifetime allowance if elected and could leave those with significant pensions pots in some amount of uncertainty. Any decisions should therefore be weighed up with the potential downsides of the lifetime allowance making a comeback in the future.

Most financial plans will aim to limit the amount of tax you pay when you accumulate and spend your money.

Pensions can be utilised to grow your wealth tax efficiently. The recent increase in annual allowance to £60,000 will permit greater levels of pension contribution. You can get tax relief on contributions at a higher rate of income tax than you would receive when you withdraw the money. It can also save you having to pay National Insurance contributions.

With the reduction of Corporation Tax, your employers’ contributions could also make a significant difference to your pension pot over time.

Prior to 2016 and the introduction of pension freedoms the vast majority of people saw pensions as simply a way to fund their retirement. They took out the 25% tax free cash and purchased an annuity at whatever the rate was available at that time.

However pensions are much more flexible today, It is now common to see pensions as another form of savings that can be used alongside other investments such as ISAs, Bonds and Unit Trusts to create a far more tax efficient income.