Plan to Minimise Pension Lifetime Charge

Plan to minimise pension lifetime charge

Pension Lifetime Allowance Planning

We return again to the subject of the pension lifetime allowance (currently £1,073,100) and how you can plan to minimise any charge.

We do so because we’re constantly reading extraordinary articles and tips encouraging pension investors to:

  1. Change their pension investment strategy so the fund barely tips over the current £1,073,100 limit and
  2. Take early retirement to try and avoid any LTA tax charge or
  3. Fundamentally change your work situation to avoid further pension accumulation.

As a reminder, any pension LTA excess charge is:

  • 25 per cent (of the amount in excess of £1,073,100) if the funds remain inside the pension wrapper (where they might be subject to income tax once withdrawn at a later date) or
  • 55 per cent on any excess taken as a lump sum before age 75

There may be extreme situations where our complex tax system can result in some individuals being financially no better off if they continue working, but these do tend to be exceptions and not the norm.

Naturally, if you were given a promotion or pay rise which resulted in part of your increased income being taxed at the higher 40% tax rate, you may explore how to minimise this, but would you really decline the increase just to avoid paying 40% tax?

Let’s keep this in context and remember the following:

  1. Any pension LTA tax charge is paid from within your pension, it is not paid from your income or other savings
  2. A 25% tax charge still leaves the pension with 75% of any excess amount over the £1,073,100 limit
  3. If you have no need to make large regular withdrawals from your pension, any net amount after having paid the LTA tax charge, can still be passed free of Inheritance Tax to whoever you nominate

If you have a question about the Pension Lifetime allowance and planning, please call us on 01825 76 33 66 or send a message via the contact form, which you’ll find by scrolling down the contact page.