This month marks Pension Awareness Week, the annual clarion call for people to take control of their retirement plans, wherever you are on your saving journey. In our latest edition of Business Matters, we’re focusing on a change impacting many business owners: the abolition of the Lifetime Allowance (LTA).
This change to the LTA – the cap on the total value that you can hold in your pensions without facing a tax penalty – was one of the headline announcements of the Spring Budget in March 2023. It currently stands at £1,073,000, but it has been effectively removed for the 2023/24 Tax Year with the intention for it to be abolished from the 2024/25 Tax Year.
The change will mostly affect senior professionals, who might have previously been tempted to take early retirement or opt out of pension saving if they were close to reaching the limit in order to avoid being subject to a Lifetime Allowance charge at 25% if taken as income or 55% if taken as a lump sum. In theory, these people can now re-start pension saving and get tax relief on contributions of up to £60,000 (or 100% of their salary if lower).
But, while this change should encourage those with larger incomes or pensions funds to engage more with their pensions, is it as clear-cut as it sounds?
The levels and bases of taxation, reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.