Pensions - Lifetime Allowance Limits
A new limit on the amount of money built up within your pension or pensions will be introduced after A-Day. This is called the Lifetime Allowance.
The allowance applies to the total amount in your pension pot, regardless of whether this is a single scheme or spread across multiple policies.
In the tax year 2006/2007 this amount is £1.5million. However, the threshold expected to rise over the years to allow for the impact of inflation.
The introduction of a single limit goes a long way towards simplifying the often - complicated calculations savers could be forced to work through under the old pension rules.
The new rules provide greater flexibility on the provision of death benefits from pensions as the Lifetime Allowance is also the maximum amount that can be paid out as a tax-free lump sum to your beneficiaries in the event of your death.
Under the new rules, any value above the limit will be subject to a new tax charge known as the Lifetime Allowance Charge, or recovery tax. This measure is aimed at curtailing the amount of tax relief individuals can get from pensions.
The charge will be levied if your fund value ends up higher than the Lifetime Allowance threshold, at a rate of 55 per cent.
Sipps-Pensions.co.uk General Disclaimer
A pension fund of more than £1.5 million might sound like the preserve of the very rich. However, if a fund performs particularly well, especially given the new investment options, it is likely that more and more individuals could be in danger of breaching the Lifetime Allowance limit and therefore potentially face a 55 per cent tax bill.
This is because the Lifetime Allowance relates to the entire pensions savings, including any private pensions, occupational pensions and free-standing additional voluntary contributions (AVCs). Many people who think they are well below the limit might have more than they realise when they take into account the full picture.
It is therefore essential that those likely to be on the brink of the lifetime limit at the 5th April 2006 keep on top of the size of their total pension fund as they build it up.
Dealing with the paperwork and calculations may seem daunting, but if you don’t want to be presented with a tax bill on retirement, it is essential to keep up to date with your pension provisions.
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Get Expert Pension Help & Advice
Is your pension in the right place for you? Let us guide you. Independent and impartial advice to find the right option for you.
Over 50 and want cash from your pensions?
We can help you get the money you need (up to 25%) from your pension if you are over 50.
