Lifetime Allowance Page

New Tax year, new you?

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As we embark on the new tax year, it presents an opportune moment to review your pension savings strategy, setting a solid foundation for future financial stability. Early attention to your private pension at the onset of the fiscal year is not just about cultivating beneficial saving habits; it’s also about ensuring you fully exploit the benefits and allowances available to you. 

If you’d like to discuss how you can maximise your pension savings, please get in touch:

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Passing on wealth through your pension

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New research reveals that almost a fifth of those aged over 55 (18%) do not plan to access their tax-free pension cash, to enable them to pass on more wealth to loved ones without incurring Inheritance Tax charges. Men are more likely to do this than women, and 38% of workers also plan to leave their tax-free pension cash where it is, three in ten over-55s say they were unaware of this.

If you’d like to discuss how to transfer wealth through your pension, please get in touch:

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Will you make the right decisions around your pension pot?

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Will you make the right decisions around your pension pot?

The announcement of the removal of the Lifetime Allowance (LTA) from the 2024/25 tax year in the Spring Budget 2023 has made defined contribution pensions even more appealing for wealth transfer. This benefits individuals over 55 who intend to leave their tax-free lump sum intact with their pension to maximise their benefits.

There may be further changes to pension allowance rules. However, removing the LTA charge allows for an unlimited sum tax-free for individuals who pass away before age 75. After the age of 75, the sum will be subject to taxation at the beneficiary’s marginal rate. It is important to note that although the charge has been removed, an LTA check still takes place to work out available tax free cash and the taxation of certain lump sum payments.

Without incurring Inheritance (IHT) Tax

New research* reveals that almost a fifth of those aged over 55 (18%) do not plan to access their tax-free pension cash, to enable them to pass on more wealth to loved ones without incurring Inheritance Tax charges. Men are more likely to do this than women, and 38% of workers also plan to leave their tax-free pension cash where it is, three in ten over-55s say they were unaware of this.

Pensions usually don’t count towards a person’s estate for IHT purposes, and can be passed on completely tax-free if someone dies before the age of 75. With no LTA charge and an increased annual pension allowance, pensions have become attractive for those looking to mitigate IHT.

Pension as a tax-free lump sum

The research also found that almost half of all consumers (46%) believe that the amount that can be taken out of a pension as a tax-free lump sum should increase in line with inflation. It is worth noting that since the LTA has been abolished, an LTA check still takes place to work out available tax free cash and the taxation of certain lump sum payments. This means that individuals are currently limited to withdrawing a maximum of 25% of the previous LTA as a tax-free lump sum from their pension, unless any protection is in place.

Tips to ensure your beneficiaries benefit from your pension:

  • Check if your pension offers death benefits: Not all pensions provide the same level of flexibility when it comes to death benefits.
  • Check with your provider to see if your pension plan allows you to nominate beneficiaries who will inherit your pension savings, as beneficiary drawdown may not be an option.
  • Specify your beneficiaries: While making a Will can be beneficial in many ways, it usually doesn’t control who inherits your pension savings. Your pension provider or trustees have the final say in where your pension savings go.
  • Name your beneficiaries directly with your pension provider or employer to ensure your wishes are considered.
  • Regularly review your beneficiaries: Life circumstances change, and reviewing and updating your beneficiaries as needed is essential. Major life events like the birth of children, marriages or divorces can impact who you want to receive your pension savings. Ultimately the trustees of a scheme have discretion. So although there are no guarantees, by keeping your beneficiaries up to date, you can ensure that your desired
  • Beneficiaries are considered first when it comes to your pension savings should you pass away.
  • Consider the tax implications: Pensions can be a tax-efficient way to pass on your wealth since they are not typically subject to
  • Inheritance Tax. With the removal of the lifetime allowance charge, pensions offer an even more attractive option for passing on your wealth to your loved ones. However, it’s essential to consider any potential tax liabilities your beneficiaries may face when receiving your pension funds.

Remember, seeking professional advice tailored to your specific circumstances regarding financial planning and pension matters is essential.

Do you want to discuss creating a retirement plan to give you the confidence to enjoy later life?

Retirement should be the golden age of your life. It’s when you finally relax, enjoy new hobbies, travel or spend time with loved ones. But retirement can only be fully enjoyed if you have financial freedom. To discuss your options or to find out more, please get in touch with us using the form below:

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*Opinium conducted research for Standard Life among 2000 UK adults, aged 18+ between 12-16th May 2023, results weighted to nationally representative.

What is pension drawdown?

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Financial Planner, Amy Burge, explains what Pension Drawdown is, what pension planning services we offer and how she has helped a client with their pension planning.

Spring Budget Pensions

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2023 Spring Budget on Pensions

Jeremy Hunt delivered his first budget as Chancellor of the Exchequer on 15th March and announced the following changes to pension legislation. 

Pension Lifetime Allowance

The Lifetime Allowance charge will be removed from April 2023 before it is abolished entirely from April 2024.

Pension Annual Allowance

The Annual Allowance will be raised to £60,000.

Spring Budget 2023

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How will the Spring Budget impact pensions?

Jeremy Hunt delivered his first budget as Chancellor of the Exchequer on 15th March, announcing key changes to pension legislation for the 2023/24 tax year.

Changes to Pension Lifetime Allowance

The headline measure was the change Pension Lifetime Allowance. Currently, the Lifetime Allowance stands at £1.0731m, this is the total amount of pension savings you can build up without incurring a tax charge over your lifetime.

If you exceed this figure, tax is charged at 25% if this excess is drawn as income, and 55% if this is taken as a lump sum.  

From 6th April 2023 the Pension Lifetime Allowance charge will be reduced to 0%, with the government intending to potentially scrap this Lifetime Allowance altogether. This will dramatically simplify pension savings for many people with assets close to the Lifetime Allowance amount.  

As part of these changes the maximum tax-free cash lump sum individuals can continue to draw will be a quarter of the current Lifetime Allowance, which equates to £268,275.  

Changes to Annual Allowances

The Chancellor has also announced key changes to the Pension Annual Allowance. The Annual Allowance currently stands at £40,000 or 100% of earnings. This allowance is to be increased to £60,000 or 100% of earnings, whichever id the greater.  

Whilst this will not affect the majority of the UK tax paying population, it does impact high earners and those who are more able to contribute larger sums into their pension savings. Increasing the Pension Annual Allowance is a move by the government towards simplifying pensions, making them appealing and attractive to the working population and is hoping to entice higher earners back to work or to stay in employment longer.  

Along with the Pension Annual Allowance, the Chancellor has also increased the Money Purchase Annual Allowance which currently stands at £4000 to £10,000. The Money Purchase Annual Allowance is generally triggered for those who have accessed their pensions flexibly, and their Annual Allowance is reduced from £40,000 to £4,000. From the 6th April 2023 this will increase to £10,000 per year.  

These significant changes made by the Chancellor in the Spring Budget have come under immediate scrutiny from opposition parties and already there have been rumours circulating that potential new Governments could well reverse these changes.

However, it is important to plan your finances based on current legislation and not hold off on making important financial decisions.

Your Ellis Bates Financial Adviser can guide you through any impact the Spring Budget may have had on your pension. If you are not currently an Ellis Bates client and are looking to review your pension in light of the Spring Budget, please do get in contact with us for an initial discussion on your particular circumstances. 

Pension Myths

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Pension myths vs facts: Can your pension provide the lifestyle you want?

We have the answers to some of the myths around pensions so that you can maximise your retirement. To find out more about our pension planning services and our retirement planning services, please get in touch.

Busting the myths about pensions

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If you are approaching retirement age, it’s important to know your pension is going to finance your future plans and provide the lifestyle you want once you stop working. Pension legislation is extremely complex and it’s not realistic to expect everyone to understand it completely. But, since we all hope to retire one day, it is important to get to grips with some of the basics.

Many of us have made pension provision, but some of us don’t know very much about the details. To help you get a handle on some of the myths around pensions, we’ve got answers to some of the things you may have been wondering about. It’s particularly helpful to become aware of the things you may have thought were facts that are actually myths. Here are some examples.

Myth: The government pays your pension

Fact: The government pays most UK adults over the pension age a State Pension, which is currently:

  • Retired post-April 2016 full rate State Pension of £185.15 a week
  • Retired pre-April 2016 full rate basic State Pension of £141.85 a week (a top-up is available for some, called the Additional State Pension)Not everyone is eligible for the full amount, which requires you to have at least 35 qualifying years on your National Insurance record. If you have less than ten qualifying years on your record, you’ll receive nothing. Even if you receive the full amount, you’ll usually need to supplement it with your own pension savings.

Myth: Your employer pays your pension

Fact: Most people are automatically enrolled into a workplace pension. Your employer is usually required to pay a minimum of 3% of your salary into it and you must also pay a minimum of 5% of your salary. If you keep your contributions at the minimum level, it might be difficult to save enough for retirement.

As life expectancies grow longer, your retirement can be almost as long as your working life. It’s therefore important to put aside a portion of your earnings to create a pension pot that will enable you to receive the income and live the lifestyle you want during retirement.

Myth: You can’t save more than your lifetime allowance

Fact: There is a lifetime allowance on the benefits you can access from your pension, which is currently £1,073,100 (tax year 2022/23). That doesn’t mean that you can’t withdraw any more after that, but it does mean that you’ll pay a tax charge of up to 55%. However, it was announced in the Spring Budget 2023 that this will be abolished from April 2023.

Myth: Your pension provider’s default fund is suitable for everyone

Fact: Most pension default funds will start out with a high-risk strategy and steadily move your capital into lower-risk investments, such as bonds and cash, as you get closer to retirement. This is to reduce volatility in the value of your investments so that you can have a higher degree of confidence in how much you’ll eventually end up with.

If you don’t plan to purchase an annuity, you don’t necessarily need to reduce volatility before retirement. You may be leaving some of your money invested for several more decades, in which case a higher risk strategy may be more appropriate.

Myth: Annuities are outdated

Fact: There was a time when almost everyone bought an annuity when they retired, and that time has passed because there are now alternative ways to access your pension savings. But annuities still have a useful role for generating a retirement income and can be an appropriate product for some people. Unlike other pension withdrawal methods, such as drawdown, an annuity offers a fixed income for life, so there’s no risk of your money running out. That’s a crucial benefit for many pensioners.

Myth: You can’t pass on a pension

Fact: If you’ve used your pension savings to purchase an annuity, the income from this will usually cease when you die. But if you have pension savings that you haven’t used to buy an annuity (for example, if you’ve been taking an income through drawdown), what’s left can be passed on to a loved one. If you die before the age of 75 there will usually be no tax to pay by the beneficiary. Otherwise, they will need to pay Income Tax according to their tax band.

Get in touch

If you would like more information on our pension planning services or are looking for financial advice, then please book a chat.

Tax Year End

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Tax Year End Checklist – Have you made use of your 2022/23 Allowances?

  • ISA allowance: £20,000pa
  • Junior ISA allowance: £9,000pa
  • Pension annual allowance: £40,000*pa (*or 100% of your earning and this allowance varies for higher rate tax payers and business owners.)
  • Check your carry-forward pension allowance
  • Check your pension lifetime allowance status (£1,073,100)

For more information on our tax planning services, please get in touch.

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