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The chancellor announced plans to scrap the Lifetime Allowance (LTA) and improve the pension Annual Allowance (AA) in his March Budget speech.

You might have read our Budget update: Changes to the Lifetime Allowance, in which we summarised those changes.

The Finance Bill is still progressing through parliament and so is not yet law.

There have been some minor changes during the consultation, and we continue to monitor the expert analysis.

As things stand, once becoming law (typically around July) we expect the planning opportunities to be in four key areas:

  • If you have previous LTA protections, you will now be able to accrue new pension benefits, without affecting your right to a higher tax-free cash pension commencement lump sum (PCLS).
  • If you have crystallised up to (or close to) your LTA, you will be able to access your remaining pensions without an LTA charge.
  • Taking money from pensions exceeding the LTA is still assessable for Income Tax. If you do not need to access your money and/or you do not wish to pay Income Tax now – but would like to crystallise your LTA excess to avoid the risk of any future reinstatement of the LTA regime – you can do so by moving (“designating”) your remaining fund to flexi-access drawdown, without drawing a penny.
  • The proposed rules create a tax anomaly on death in certain circumstances. The possible effects of this can be avoided by nominating a wider pool of beneficiaries under your pensions.

We usually suggest nominating less than 100% to your main desired beneficiary and then a token 1% to any other possible beneficiaries (adult children, siblings, for example). This creates a pool of possible beneficiaries. On death, pension schemes have the power to award more or less than the stated percentage to your nominated beneficiaries, depending on the family circumstances at that time.

Get in touch

We will be discussing the issues with affected clients once this becomes law.

But, in the meantime, if you have any questions about your long-term financial planning, contact us now to find out how our Chartered financial planners could help you.