Skipton Financial Services
Wednesday, October 26, 2016 - 11:42

Know Your Limits - Are you affected by the pension Lifetime Allowance reduction?

As recently as 2009 you could have £1.8 million inside a pension without incurring tax, but the Lifetime Allowance has been reduced a couple of times since.

Earlier this year, the allowance was once again cut – this time to £1 million. The good news is that £1 million is still a lot of money to have in a pension – and the vast majority of us are highly unlikely to exceed the Lifetime Allowance.

However, if you’re a high earner with a defined benefit scheme, or have accrued a high value defined contribution pension, you might need to check if you’re on course to exceed your Lifetime Allowance. It’s not just about how much you are paying in, your Lifetime Allowance also includes any growth you achieve whilst it’s invested. The annual statements your pension provider sends you should include a projection of what your pension is set to be worth. Alternatively, you should contact them for the information you need.

If you’re currently – or projected to be – above £1 million, you’ll be pleased to know there are forms of protection available to consider.

The below outlines the type of protection that is available for you. For more information and to apply, visit:

www.gov.uk/guidance/pension-schemes-protect-your-lifetime-allowance

Individual protection 2014

The benefits

  • If your pensions are worth more than £1.25 million on 5 April 2014, this gives you a personal lifetime allowance based upon the value of your pensions at this date, up to a maximum of £1.5 million.
  • You can continue to save into a pension but must pay tax on any withdrawals that exceed your protected lifetime allowance.

You need to apply…

…before 5 April 2017

Individual protection 2016

The benefits

  • If your pensions are worth more than £1 million on 5 April 2016, this gives you a personal lifetime allowance based upon the value of your pensions at this date, up to a maximum of £1.25 million.
  • You can continue to save into a pension but must pay tax on any withdrawals that exceed your protected lifetime allowance.

You need to apply…

…anytime (no end date)

Fixed protection 2016

The benefits

  • This fixes your Lifetime Allowance at £1.25 million.
  • You can’t make any further pension contributions without losing the protection.

You need to apply…

…anytime (no end date)

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