Navigating through the world of pensions can often feel like trying to find your way through a maze. However, with the UK Government’s recent updates to the Lifetime Allowance (LTA), it’s essential to understand what these changes mean for your pension. 

In this blog, we’ll provide an overview of the changes and explain how they might impact your individual pension plans.

The big change: Abolishing the Lifetime Allowance

As announced by Chancellor Jeremy Hunt in his 2023 Spring Budget, from 6 April 2024, the Lifetime Allowance will be no more. 

This allowance, previously set at £1,073,100, limited the total amount individuals could pay into their personal pension pot throughout their lifetime before triggering an additional tax charge.  

The Government initially removed the charge for the lifetime allowance last year, but the allowance will be completely abolished this April. This measure marks a significant shift in pension policy.

What does this mean for you?

Simply put, the abolition of the LTA means that savers will no longer face a cap on pension benefits or an additional charge when they exceed that limit. 

Going forward, these benefits will be subject only to the usual income tax charges, 

Taxation of lump sums and death benefits

The rules around the taxation of lump sums, including those paid upon death, have been clarified. This means that although there’s no LTA to worry about, other tax rules will still apply.

Key points to remember

• The amount of tax-free cash you can take from a pension scheme at age 55 remains capped at 25% of the lower of the lump sum allowance and the value of your benefits.
• The beneficiaries of pension scheme members who die before age 75,  may receive tax-exempt lump sum up to a certain limit.
• The annual allowance for pensions currently stands at £60,000. While individuals can pay more than this amount into their pension pot annually, any contributions over this limit will not qualify for tax relief.

Transfers to overseas pension schemes

If you’re considering transferring your pension to an overseas scheme, it’s important to note that these transfers will now be subject to a 25% charge if they exceed a certain allowance. This aligns with the pre-2023 rules and marks a return to earlier tax treatments.

What should you do now?

For individuals, it’s a good time to review your pension strategy. Without the LTA, you might find more flexibility in how you plan for your retirement.

If you’re an employer or a trustee, you may also need to adapt. You should consider how the abolition of the LTA and the introduction of new lump sum allowances might impact how you account for pension contributions and scheme rules.

A final point

The abolition of the lifetime allowance is a notable change in the UK’s pension landscape. While it simplifies some aspects of pension planning by removing the cap on benefits, other tax rules and considerations remain in place. It’s always wise to stay informed and seek advice tailored to your specific circumstances.

Remember, pensions are a long-term game, and changes like these can open new doors for your retirement planning. Stay calm, stay informed, and make the choices that best suit your future.

Need advice? Contact JP Harrison today.