Pension Lifetime Allowance due to fall

There is some apprehension in the air around cuts to the Pension Lifetime Allowance following the Budget earlier this year. In a bid to recoup some of the Government’s 2020/2021 losses, following the Budget deficit, it could mean you will end up paying more tax in your retirement, or even sooner than that.

£300 billion in losses are going to be slowly but surely clawed back through one means or another. This could mean changes to Pension Tax relief or Pension Lifetime Allowance (LTA). And although they may not be announced until the November Budget, we want you to be ahead of the game, with plans in place to avoid any nasty financial shocks.

What is the Pension Lifetime Allowance?

In simple terms, you can save as much as you like into a pension plan or pension schemes. However, there is a threshold after which you start to pay tax on the benefit.

A one-off charge of 25% is claimed if you take a regular pension income through a drawdown plan. Or 55% if you withdraw your pension in the form of a lump sum payment.

The current LTA of £1,073,100 gives a guaranteed income of £1,700 per month, which for some is sufficient to live comfortably into retirement. For others, this may come as a surprise, and cause concerns.

Either way, if the threshold is cut to what is believed to be £800,000 or £900,000 this may have even bigger consequences. Which is why we are giving you the advanced notice to be prepared!

Protecting your Pension Lifetime Allowance

‘Protection’ against LTA reductions has been available in the past, which meant pension investors could fix their LTA at a higher amount, and subsequently be liable for a reduced tax charge. However, there is no guarantee that these same forms of protection (Individual Protection 2016; Enhanced Protection; Fixed Protection 2016; or Fixed Protection 2014) might still be available.

Which is why seeking professional and independent financial advice is the safest and most logical next step.

Simpson Financial Services can carry out a thorough financial review of your current accounts, savings accounts, and pension schemes to assess the most viable and tax-efficient way forward if you are in doubt, or if you have any concerns about relevant pension protection products.

So, what else could you do now to protect your LTA?

There are other options you could consider now, for which we can provide further details.

• You can pay up to £20,000 into an ISA.
• You could save (up to the amount they earn, or up to £2,880 for a non-earner) into a pension on someone else’s behalf. This will not affect your personal LTA or the amount you can save into your own pension plan. And, if they are a non-earner, they receive a 20% government tax relief top-up.
• Or you could gift a spouse or loved one by paying into their pension plan.

Remember though that once the money has been gifted in this way, you have no further right to it.

How is your pension plan bearing up?

With the current LTA limit of £1,073,100, initially due to remain in place until 2026, now is the time to find out if you are getting close to the threshold in case this cut does come into effect.  

Rather than giving financial advice here and now though, we know your financial situation is specific to you, so we recommend seeking guidance from one of our expert retirement advice and planning advisors.

They will not only be able to put bespoke plans in place for you. But will also monitor your individual financial portfolioto ensure you are not tripped up by any unexpected Pension Lifetime Allowance or other tax changes. And indeed, make sure you are aware of benefits across your accounts which you may not already be claiming.

If your pension is set up and firmly in place, contact your pension provider for the value, how much you have already saved, and whether you are getting close to the LTA.

Any financial advice you need from then, we will be happy to provide for you and ensure you are getting the best in future financial planning and continued support.  

What will a cut to the LTA mean to me?

Any reduction in the Pension Lifetime Allowance is giving out the opposite message to that which we have always had drilled into us, to save as much as possible for your retirement. Afterall, it should be a time when you can sit back and enjoy your golden years, with no financial concerns.

Higher earners will be affected, as will those who followed previous guidance to save hard in early employment.  And final salary pension earners could also see a huge impact – the likes of NHS seniors and headteachers, who may simply decide to retire earlier than planned.  

To reduce the threshold quite considerably, as it is believed the Chancellor plans to do, simply forces a higher tax charge when, quite frankly, most could do without.

So, there is also talk of a flat rate of 30% but any changes will have significant impact on individuals, employers, and pension schemes overall.

Frustrations have been clearly communicated, from such as Steve Webb, former Pensions Minister, who stated:

“People are planning for a generation. What they can’t have is constant chopping and changing of the pension rules because the country is broke.”

Indeed, financial advice is already being sought in preparation for any cuts, so make sure you are ready.

Why Simpson Financial Services should be your first port of call  

Here at Simpson Financial Services, we have a team of industry experts across the entire financial spectrum.

From tax advice, investment planning, savings accounts, and Lifetime ISAs, through to retirement planning and estate planning, your life and your loved ones are covered.

Once new customers join us, they stay with us. We know how to get the best from their investments, protect their benefits, and plan ahead with regular financial reviews.

Nothing is too simple or complex for our independent financial advisors to handle. And we talk to you in terms you will understand. You see enough financial jargon in the headlines, you need personalised, informative guidance.

So, if you think you might be getting close to your Pension Lifetime Allowance or are in the process of planning ahead for your family’s future; if you are ready to put your savings plans in place, and want to look forward to a happy and secure retirement, contact us today at Simpson Financial Services. Together, we will make sure you benefit from your hard-earned pension, and you don’t lose out with unwanted taxes!