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.
2023/2024
- 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).
2024/2025
- 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.
Wider considerations
- 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.
