News & Views

Prudential: The Christmas stocking may be empty but there’s a token coming in the Easter egg basket!

Pension news for Financial Advisers and Paraplanners

7 Jan 2019

Prudential: The Christmas stocking may be empty but there’s a token coming in the Easter egg basket!

As far as pensions are concerned, the budget didn’t present as much as a small stocking filler. But just before the Easter Bunny arrives we’ll have a higher lifetime allowance limit. Jacqueline Clezy, Technical Manager at Prudential goes into more detail. 

Who benefits? 

Potentially, anyone who has currently used less than 100% of their lifetime allowance. If 100% LTA is already used, regardless if this was based on an LTA limit as low as £1m, there is no benefit gained from the increased LTA of £1,055,000 from 6 April 2019. Similarly if you have a form of LTA protection, your personal LTA limit will not increase, as detailed later.

What is the benefit? 

For someone with pension funds which, when tested for lifetime allowance, would use up less than the current LTA of £1,030,000 there is no added benefit. There is no LTA excess tax charge where pension funds are tested and are within the standard LTA limits, so an increase to the limit means no change for them, unless they plan some additional funding.

Anyone with pension funds which would use up to £1,055,000 of LTA, who has no valid LTA protection, may benefit from, some or all of the extra, £25,000 and be exempt from LTA charges. If they were to take this amount as an LTA excess lump sum before 5 April 2019 the charge would be 55% of the fund, ie £13,750, with the member receiving £11,250 net. Or if they used it to provide income, the charge would be 25%, ie £6,250, with £18,750 used to provide income as a lifetime annuity or designated to drawdown. Bear in mind this income will be subject to PAYE as normal.

Members with any form of LTA protection will not see an increase in their LTA limits unless their protected LTA is overtaken. For example, Rudolph has Individual Protection 2016 with a relevant amount of £1,040,000  Rudolph’s IP16 value becomes irrelevant and any BCEs dated on or after 6 April 2019 will be based on the higher standard LTA amount of £1,055,000.

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