Lifetime Allowance abolished for pensions

Lifetime Allowance abolished

Lifetime Allowance abolished for pensions

Announced in the Spring Budget, the Lifetime Allowance (LTA) abolition releases people to save as much as they like in their pension schemes. 

The LTA limits how much people can build up their pension pots over a lifetime whilst benefiting from tax incentives. 

The previous threshold was £1,073,100. Anything over that was subject to a tax charge of up to 55%.

Necessary change

The Government argues that the LTA change was necessary because too many highly paid professionals, including NHS consultants and GPs, take early retirement and predict that more and more older public and private sector employees would change their behaviour or retire early to avoid being hit by penalties.

The Chancellor also increased the Annual Allowance (AA) to £60,000. The AA is the total amount paid into your pension annually across all sources before you pay additional tax charges. 

He has also increased the Money Purchase Annual Allowance (MPAA) and Tapered Annual Allowance (TAA) from £4,000 to £10,000 and the Adjusted Income for TAA from £240,000 to £260,000.

Money Purchase Annual Allowance (MPAA) changes

Previously, if you accessed any taxable money from your pension, your allowance reduces from £40,000 to £4,000. 

The MPAA limits how much individuals over 55 can pay into a defined contribution pension with tax relief once they start drawing their retirement income. useful 

The Chancellor has increased this from £4,000 to £10,000, which might be advantageous for anyone who dipped into their pension plan to help top up their income during the pandemic or while living costs are so high.

Tapered Annual Allowance (TAA) changes

The TAA applies where an individual has a threshold income of £200,000 and adjusted income of £240,000 (adjusted income includes all pension contributions, while threshold income excludes pension contributions).

Where the TAA applies, an individual’s AA is reduced by 50p for every £1 over the adjusted income threshold to the minimum level. The minimum level has increased to £10,000.

Need help with understanding pension tax liabilities now that the Lifetime Allowance is abolished? Contact us.