News

Pension reform: Major changes to lifetime allowance and annual allowance.

With effect from 6 April 2012 the lifetime allowance for pension benefits will reduce from £1.8 million to £1.5 million. This is the maximum anyone can have without paying an additional tax charge. (NB the tax rate is 55% on any excess above the £1.5 million new limit!).

However, an individual pension investor can protect the current £1.8 million lifetime allowance, but only if they apply to do this before 6 April 2012 and pay no further contribution into any pension scheme after that.

The annual allowance for pension contributions reduced from £255,000 to £50,000 on 6 April 2011. So if your annual contributions to pension arrangements, including any from an employer, are more than this, then you could be liable to further tax charges.

The financial planning issues involved here are potentially complex depending upon individual circumstances. For example, membership of the NHS Pension Scheme and the amount of fund therein will need to be assessed carefully when looking at both the lifetime allowance and annual allowance.

There are tax planning and tax savings opportunities based around these legislative changes, but as is the case in respect of applying for fixed protection, time is of the essence and action is potentially required before 5 April 2012.

If you feel that this may be an issue for you then I would urge you to urgently contact your appointed Independent Financial Adviser (IFA) or revert to us immediately if you require a recommendation.