There’s good news on the horizon for people with larger pension pots. Despite predictions from pension experts, a recent announcement has confirmed that the Treasury will raise the Pensions Lifetime Allowance (LTA) from April 2018, in line with inflation.
The Lifetime Pensions Allowance is the maximum amount of money that an individual can save in their pension pot and benefit from tax relief. Any savings after that trigger an extra tax charge of 55%.
This will be the first time in seven years that the Pensions Lifetime Allowance will see an increase. In 2010 the LTA was set at a healthy 1.8 million. Over the years this has gradually diminished to 1 million. Despite predictions that it would fall even further this year.
It has recently come to light that more than 90,000 people in the UK have stopped saving towards their pensions for fear that they might exceed the limit.
Are you affected by the Pensions Lifetime Allowance?
If you are wondering whether you might be affected by the LTA cap and want to work out your pension pot, here’s how it’s calculated.
For those with Defined Contribution Pensions, it is the total value of the pensions. To calculate the value of your pension fund when you have a Defined Benefit Pension, you’ll need to multiply the annual income by 20 times. Also, you’ll need to add any tax-free lump sums you receive.
There’s hope for those who have already exceeded the LTA limit on 5th April 2017. Options include applying to HMRC for fixed protection against the 55% tax charge on excess funds.
Andrew Colyer-Worsell, senior pension adviser from Fix My Pension, said “once again we see that responsible savers are being penalised with unrealistic limitations. There are a few options open to those who have already exceeded their LTA limit, but they will need act soon to avoid penalties. Everyone’s circumstances are different, and it’s advisable to talk to an Independent Finacial Adviser to review options.”