Think around corners. Protect yourself against the Lifetime Allowance

The Lifetime Allowance is a limit on the value of the pension funds you can accrue – whether through lump sums or retirement income – that are subject to tax relief. Any pension pots that are higher than the LTA will be subject to a Lifetime Allowance Charge.

In April 2016, the pensions Lifetime Allowance will reduce to £1m from the current limit of £1.25m. This will be accompanied by two transitional protection measures to protect those pension savers who will be affected by the change – Fixed Protection 2016 and Individual Protection 2016.

By our count, Fixed Protection 2016 and Individual Protection 2016 will be the 9th and 10th set of such measures since 2006!

For those potentially affected, this requires the most complex advice, and you need to be able ‘think around corners’ to address all the issues involved.

The concerns that have to be taken into consideration include:

  • What is the Lifetime Allowance tax charge and how is it paid?
  • What are the Protection options available to avoid the Lifetime Allowance tax charge, and how and when can you apply?
  • Is Individual Protection 2014 (which can still be applied for) more suitable than the 2016 options?
  • Would it be better to continue to contribute to pensions and pay the Lifetime Allowance tax charge?
  • Alternatively, does it make sense to take pension benefits in 2015/2016 and what are the income tax implications of taking benefits early?
  • Is it best to take the Lifetime Allowance tax charge against pension income (25%) or pension capital (45%)?
  • If the most practical solution is to opt out of a pension scheme, what about Death in Service or ill health pension benefits?
  • What is the position with regard to the other pension limit, the Annual Allowance (now £40,000 per annum)

On the face of it, the deadline for decisions appears to be July 2016, when individuals will be able to apply for Fixed Protection 2016 and Individual Protection 2016. However, to make effective use of the protection, many pension scheme members will have to consider ‘opting out’ of pension saving in February or March this year.

With so many imponderables, expert independent advice has never been more essential. If you think you may be affected by the 2016 changes you cannot afford to delay.

Call 01244 347583 for a free, initial consultation and speak with one of our pension specialists – we are available at times to suit you.

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