Despite the press briefing by HM Treasury on Friday evening that no reforms to the pensions tax regime will be announced in the Budget next week on 16th March, there are still some important pension items to consider.
If you think either of the following points affect you then do contact us for advice about what to do.
Lifetime Allowance reduction
From 6th April 2016, the Lifetime Allowance for pensions will be reduced from its current £1.25m to £1m.
Pension pots and benefits exceeding this reduced Lifetime Allowance will face penal rates of tax charges.
There will be the chance to apply for protection so that you benefit from the current higher Lifetime Allowance of £1.25m.
Fixed Protection 2016 will allow you to benefit from a lifetime allowance of £1.25 million regardless of the current value of your pension pot.
If you opt for this protection, you will not be able to accrue any further pension benefits or pay any further pension contributions after 5th April 2016.
So if you want Fixed Protection 2016 you will need to take action and stop accruing or making further contributions by 5th April 2016.
Individual Protection 2016 will allow you to protect the value of your pension pot and benefits at 5th April (as long as it is more than £1m as at that date) and you will be able to continue to contribute to your pension pot.
Only the excess over your individual protection figure will be subject to the tax penalty.
You should certainly take advice if you think that your pension pot and benefits are likely to exceed the Lifetime Allowance in the future.
Keep in mind that defined benefits are also taken into account when calculating your Lifetime Allowance, with a multiple of 20 used to calculate the capital value.
High earners and those who have paid significant pension contributions might also need to consider acting before the end of this tax year.
There is a limit on pension’s contributions of £40,000 per tax year with some scope for carrying forward unused allowances from previous tax years.
From 6th April 2016, those earning more than £150,000 a year including the value of any pension contributions and who have an income excluding pension contributions in excess of £110,000 will have an annual allowance lower than £40,000. This means some advance planning could make sense.
You may have some scope to carry forward unused annual allowances from previous tax years and you may need to adjust your contributions for the next tax year to ensure you do not exceed your new reduced annual allowance.
Do let me know if you have any questions and we will be delighted to advise you.