Newspaper article The Journal (Newcastle, England)

Pension Lifetime Allowance Changes

Newspaper article The Journal (Newcastle, England)

Pension Lifetime Allowance Changes

Article excerpt

WITH the prospect that most of us will be living longer it seems strange that any Government would seek to limit the amount we can save into our pensions.

In April, the amount maximum that can be saved without incurring a tax charge was reduced to PS1 million. This is what's know as the Lifetime Allowance and this is the third time the Government have lowered it. Whilst PS1 million may still seem beyond the reach of the man in the street, many will be caught out, often to their complete surprise.

The restrictions on how much can now be saved is a reflection on how valuable the tax advantages pensions now offer.

Those tax advantages benefit the individual at the cost of the tax man and this is worth bearing in mind even if you don't think you will ever reach the Lifetime Allowance.

So what is the Lifetime Allowance? It is the value of pension benefits, whether lump sums or retirement income that can be accrued without triggering an additional tax charge.

The tax charge is levied on the amount in excess of the Lifetime Allowance when benefits are taken.

If benefits received are in excess of the Lifetime Allowance, then any further lump sums are taxed at 55% and any funds drawn as income would suffer an additional tax levy of 25%, over and above the income tax that would also be due.

A Lifetime Allowance charge may also be levied on death before age 75 when a person's pension benefits are valued in excess of the Lifetime Allowance.

Even if you don't have a pension fund with a value anywhere near a million you could still be caught.

Not only do savers have to consider future contributions and fund growth but also, members of defined benefit or, final salary pension schemes do not escape.

Many high earners who are drawing to the end of a career in for example, the Civil Service or the NHS are discovering that they could be subject to these penal tax charges. …

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