Image
Wealth Planning -
Pensions and changes to lifetime allowance explained
The lifetime allowance is the limit on the amount of pension benefits you can build-up over your lifetime while still enjoying the full tax benefits.
Changes to the lifetime allowance could have significant implications for wealth planning — particularly for higher-income earners. Here is what you need to know:
Pension changes announced in the Spring Budget and effective as of 4 April 2023:
- The annual allowance increased by 50%, from £40,000 to £60,000.
- The money purchase annual allowance has also increased to £10,000 from £4,000.
- The lifetime allowance charge (previously taxed at 55%) for pensions over £1,073,100 has been scrapped.
- Taxation of excess lump sums, including serious ill-health lump sums and death-related lump sums, has also been scrapped.
Pension changes announced in the Autumn Statement 2023
- The new basic state pension will increase by 8.5% to £221.20 per week (£11,502.40 per annum) with effect from 6 April 2024.
- Chancellor Jeremy Hunt said he would consult on a new pension ‘pot for life’ pension model, giving pension savers the right to have pension contributions paid into the pension of their choice.
What is the purpose of these changes?
These changes aim to encourage people to save more and work for longer. Ultimately, these changes have the potential to drive economic growth and increase funding into sectors such as healthcare.
Previously, charges and allowance limitations had acted as a deterrent for many well-paid, older earners to remain in the workforce for fear of facing an excessive penalty for exceeding the £1.07m threshold. Removing these barriers to later-life employment and saving means that more high-income workers will likely remain in the workforce.
These changes will be most felt by the UK’s top earners — namely, those able to save over £1.07m in their pensions — meaning the direct benefits and incentives will be felt by a small percentage of the country.
How does this impact wealth planning?
Understanding the annual and lifetime allowance changes is critical to effective future safeguarding and wealth planning. With limits increased and charges scrapped, this now means that it may be time to reconsider your pension contributions and savings distribution.
Speak with one of our wealth planners to help with your pension plans
Further reading
So, How Much is Inheritance Tax?
Inheritance Tax (IHT) is a tax on the estate of someone who has died, including all property, possessions and money.
How to be Tax-Efficient: Structuring Your Wealth
Find out which allowances and structures can help you increase tax efficiency. Protect and grow your wealth with guidance around how to be tax efficient.
Protect your wealth from inheritance tax
Record-breaking inheritance tax receipts are rolling into HMRC. But families can reduce the chances of being hit by a hefty inheritance tax bill by taking steps now.
Becoming a client
Take control of your finances today by completing our enquiry form. Alternatively, you can call us on the number below and one of our team will be more than happy to talk about your future.
Brochures & email subscriptions
Request a brochure, or subscribe to our email updates.
Related services
Wealth Planning • Investment Management • Retirement Planning
Author -
Paul Clifton, FPFS
Chartered Financial Planner, Director – Wealth Planning
Paul is a trusted Wealth Planner, who has built a strong reputation for helping clients identify and achieve their life goals, while maintaining the highest standards of personal service. In addition to helping clients in the West of England and South Wales, he is responsible for developing and managing the regional Wealth Planning team at Arbuthnot Latham.
The aim is to deliver professionalism, experience and honesty. Our bespoke solutions cover wealth/tax structuring, estate planning, retirement planning and financial protection. In addition, we work seamlessly with our colleagues to provide investment management, private and commercial banking services.
Paul has over 20 years of industry experience advising individual and corporate clients. He joined Arbuthnot Latham in July 2020 having previously worked for Hargreaves Lansdown and Chase de Vere. Paul is a Fellow of the Personal Finance Society and a Chartered Financial Planner.
DISCLAIMER
This communication should be considered a marketing communication. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research. It is for information purposes only and does not constitute advice, a solicitation, recommendation or an offer to buy or sell any security or other investment or banking product or service. You should seek professional advice before making any investment decision. The value of investments, and the income from them can fall as well as rise, and may be affected by exchange rate fluctuations. Investors could get back less than they invest. Past performance is not a reliable indicator of future results. The tax treatment of investments depends upon individual circumstances and may be subject to change.
The contents of this communication are based on opinions or conditions as at the date of writing and may change without notice. To the extent permitted by law or regulation, no warranty of accuracy or completeness of this information is given and no liability is accepted for its use or reliance on it.