It’s been a busy time for the Technical Team at Nucleus following the changes announced in the Spring Budget.
A concern for some of those with sizeable pension savings was the Labour Party's announcement, immediately following the Budget statement, that they'd reintroduce the Lifetime Allowance (LTA) if they were to form the next government.
It's perhaps worth pointing out that while a Labour Government introduced the LTA, with the standard lifetime allowance ultimately reaching a level of £1.8m, it was the subsequent coalition government and the present government that are responsible for reducing it to its current low level.
With Labour's pronouncement in mind, there's a possible two-year window, and certainly one tax year, to maximise opportunities offered by the changes.
- For clients previously dissuaded from funding their pensions over concerns they'd exceed their LTA they may consider increasing or recommencing their funding.
- Those who've fully utilised their LTA could fund further pension provision but avoid an LTA charge. They will, however, have no entitlement to any additional pension commencement lump sums (PCLS).
- With the perceived risk of a Labour government, individuals with uncrystallised funds greater than their LTA may wish to crystallise the full amount to hopefully reduce an LTA charge in future. There's then, perhaps, scope for reinvesting any PCLS in an ISA or GIA , while being mindful of other tax liability consequences of taking such action.
Also, due to the changes, it might be worth considering a different option for a scenario that is often raised with me. This is where an individual has money purchase pensions greater than their LTA, but no need to take any of their benefits as they have sufficient assets elsewhere to maintain their lifestyle.
Previously, there was at least a tendency to take the maximum PCLS, while crystallising up to their LTA, but not to draw any income. The issue with the former is it would simply increase their estate for IHT purposes and with the latter, there would be an LTA charge at some point, either at the time of death for the uncrystallised element or at age 75.
If we presume that nothing changes from what's been proposed and that pension death benefits also remain unchanged, then they could fully crystallise their benefits and not take any PCLS.
There would be no LTA charge and, if they were to die before 75, the whole of their pension fund could pass tax free to their beneficiaries.
The potential downside to these changes, well to paraphrase the late Donald Rumsfeld, there are all the unknown unknowns and it's these that tend to cause the difficulties.
