As a result of these changes, now is the perfect to time to review your retirement planning – whether you are yet to retire, or even if you have retired and have pension benefits still in place.
Not all the changes are immediate and some of the finer details are yet to be confirmed. Below, we look at what changes have been made, what we expect to happen in the future, and some further points for consideration.
- The Lifetime Allowance (LTA) remains in place and pension providers still must test benefits against the LTA as normal.
- However, the LTA charge is effectively 0% for funds designated to income. Remember though, any income you draw from the pension is then charged at your marginal rate.
- Taxation of any LTA excess lump sum, serious ill-health lump sum, defined benefits lump sum death benefit and uncrystallised funds lump sum death benefits above the LTA changed from a 55% tax charge to taxation at an individual’s marginal rate of income tax.
- Where you have taken pension benefits in the past (known as a Benefit Crystallisation Event) still has to be accounted for when drawing further benefits.
- If previous pension access result in LTA charges, these will continue to apply (for example reductions to NHS Pension income already in payment).
- It is anticipated that the LTA will be abolished.
- Pension Commencement Lump Sum entitlement (otherwise known as tax-free cash) is expected to be capped at £268,275 (in line with 25% of the current £1,073,100 LTA).
- If you held a higher entitlement to PCLS (for example, through Enhanced Protection) you will retain this.
- With the proposed changes to PCLS entitlement, it is not yet clear how this will be recorded if you access PCLS from multiple pension pots.
- If you hold Enhanced or Fixed Protection, which provides a higher LTA, the removal of the LTA could now enable you to start contributing to pensions again (where previously contributions would have meant losing your protection)
- Another factor to consider with the changes to PCLS rules, is which benefits to draw first – particular if you hold both Defined Benefit and Defined Contribution pensions – in order to maximise your entitlement.
It is important to keep in mind that these changes have not yet received Royal Assent and have not yet been signed into law, and so could change.
Because of this, it is more important than ever to ensure you receive the right advice in planning for your retirement.