If you are planning for your retirement, the Lifetime Allowance may be an unwanted complication when considering how you are going to fund your older age. The limit of £1,075,000 may sound like a large sum but an increasing number of people are being affected and are seeing their pension pot being reduced due to an additional charge. Below is a guide to who might be affected and how financial planning can mitigate any potential charge.
If you are in a Defined Contribution pension, the money in your pension pot is tested against the Lifetime Allowance when you begin to take your pension benefits. This value is taken against the limit at that particular time and the current £1,075,000 limit is only due to increase by the Consumer Price Index (CPI) each year. With low inflation and strong investment returns, you could see your pension exceeding the limit in future years.
For those people who are in a Defined Benefits scheme, the value of your annual pension is multiplied by a factor of 20 when you begin drawing an income in order to calculate the capitalised value of the scheme. This can come as a surprise to many people and leave them with facing a lower than previously expected income in their retirement.
For those individuals exceeding the Lifetime Allowance, the charge applicable on any excess is currently 55% if the money is taken as a lump sum, or 25% if taken as income. The good news is that there may be ways to mitigate this tax charge by looking at the various options involved with your pension contracts and taking a holistic approach to your finances.
We have experience of ensuring that people in this situation maximise their income so they can fully enjoy their retirement. If you think that you may be affected by the Lifetime Allowance or would like further information on the above, please Contact Us for a free initial meeting.
Information provided on this website is general in nature and does not constitute financial advice. We recommend you speak to a financial planner in order that your specific objectives and needs are accounted for.
Whilst Independent Financial Planning will ensure that the information on this site is correct, they are not liable for any damages or loss arising from the website, or any errors in the information provided.
The value of investments and income from them may go down as well as up and you may not get back the amount invested. Tax legislation and the levels of relief from taxation can change at any time.