Page 69 - Solihull Living Nov/Dec 2019
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                Are you putting too much into your pension?
Jonathan Hayton, a Chartered Financial Planner at Canaccord Genuity Wealth Management offers some guidance...
In a nutshell, the lifetime allowance (LTA) is the amount you can save in your pension tax free over your lifetime. It used to be £1.8m, it then went down to £1m, and it currently stands at £1.055m (for the 2019/2020 tax year) and is scheduled to rise with inflation (CPI).
Although £1.055m might seem a lot, more individuals are being caught by the limit, so it’s worth checking what your savings are forecast to reach – and if you need to take action to mitigate your potential tax liability.
How the LTA works
You can still save into your pension over the LTA limit, but there will be a tax penalty on the excess amount. The tax you pay
on the excess amount over the LTA depends on how you take this money out: if you take it as a lump sum, it will be taxed at 55%, and if you take it as income, either as drawdown or by purchasing an annuity, it will be taxed at 25%. With the latter option, any income taken would also be charged at your marginal tax rate.
There are things you can do. Firstly, there are ‘protection’ options you can apply for which will fix your LTA at a higher amount. This could be fixed or individual protection, depending on when you made your last pension contribution.
Secondly, there are ways to reduce the value of your pension to below the LTA, such as taking advantage of the 25% tax-free lump sum or by drawing an income. However, there are lots
of considerations around these options, including inheritance tax implications and rules such as the money purchase annual allowance. You should always consult your financial adviser on suitable investing so you can discuss and understand all the available options. The above is our current understanding of UK legislation and does not constitute as advice. Naturally all investments involve risk.
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