More pension changes

Jan 15, 2016 | Tony Byrne's View

In April, the Government will reduce the lifetime allowance for pensions, which is the amount you can accumulate in pensions before any additional tax charges may apply when amounts over this limit are taken. The lifetime allowance will reduce from £1.25 million to £1 million. This is further to cuts already made that brought the lifetime allowance down from its 2010 high of £1.8 million. While pension savings of more than £1 million sound like a large amount, if you have a final salary or defined benefit pension that is set to pay you over £40,000 a year in retirement, the calculations involved mean this is actually worth £1 million in terms of your lifetime allowance. Also, if you have additional personal pensions, you could easily go over the limit. The good news is that you have stopped contributing to a pension you don’t need to take any action to protect the higher lifetime allowance until you decide to take benefits. Therefore, if you have yet to draw on your pension benefits, and plan to do so after 5th April 2016, you will need to apply before you draw from any of your pensions so that you can be tested against the higher £1.25 million allowance. HMRC are planning to introduce an online application for this from July 2016. More information will be provided as and when we have further news.