Your lifetime allowance is the maximum amount you can build up in pension benefits over your lifetime without incurring a tax charge.
Pension drawdown above LTA is subject to a 55% charge when taken as a lump sum and 25% when taken as income.
A £1million pension can seem impossible to reach but with compound interest things are easier than you might think. A £500,000 pension pot may increase to well over £1,000,000 over 15-20 years.
If you think you could be at risk of exceeding the LTA of currently £1,073,100 and reducing. There are plans of action you can put in place to make sure you stay under the threshold and are making the best decisions:
- Contribute to an ISA instead of your pension. You have a tax free allowance of £20,000 per year. However if you are part of a workplace pension scheme where your employer also contributes it is likely you are better off continuing to contribute to that.
- Contribute into your spouse’s pension instead which effectively doubles your lifetime allowance. Though at the same time be mindful of divorce risk.
- You may have entitlements that can be applied for. If you haven’t made contributions since 2016 you can apply for fixed protection with the LTA at £1.25 million. If your pension was worth more than £1 million in April 2016, then you get an allowance of the lower of your pension value at that time or £1.25 million.
- There are ways a wealth manager can reduce the impact of the lifetime allowance in the way you draw down your pension benefits, whilst still meeting the needs you have in your retirement.
To ensure you are managing your LTA efficiently, talk to one of our FCA authorised wealth managers by arranging a Discovery Call [Here]
This article is for informational purpose only. It does not constitute finacial, tax or legal advice, nor is it a recommendation to buy, sell or hold any investment. Past performance is not a guide to the future, investments rise and fall so investors could make a loss. No view is given on the present, future value or price of any investment and investors should form their own view on any proposed investment.