- are you affected by the changes?

What is the Lifetime Allowance (LTA)?

The LTA is the maximum amount you can build up into a pension
over your working life and receive tax relief.

Over the past 10 years the LTA has fluctuated, rising from 1.5m
to 1.8m, reducing back to 1.5m, then to 1.25m and falling to
1m in April 2016. And many fear it could be cut further in future
although from April 2018, the LTA will be indexed year on year
in line with the Consumer Price Index.
If you have pension savings above the LTA they will be subject
to a charge. This is:

55% if the excess is taken as a lump sum

25% if the excess is taken as income, for example as a scheme
pension, an annuity or drawdown. Income tax at your marginal
rate will also be payable.

From 6 April 2016, the Lifetime Allowance will fall from 1.25m to
1m.Any pension savings you have over and above this new limit
could be hit by a tax penalty of up to 55%.

Testing the LTA

The LTA must be tested every time there is a Benefit Crystallisation

Event (BCE). Currently eleven different BCEs reflect the different
ways in which you can draw benefits depending on the type
of pension scheme, its rules, the shape of the benefits and
circumstances (retirement, death, transfer overseas etc).

A test may be applied more than once to the same pension

pot. For instance, when you choose a drawdown pension, a
test occurs at outset, then again when you use funds previously
designated for drawdown to buy an annuity or reach age 75,
whichever comes first.

Are you in the LTA danger zone?

Even if you have less than 1m in pension savings today, you

could still be caught by the reduction in the LTA. Savers in their
mid-40s with pension funds around 650k, could be at risk of the
tax penalty if their fund grew at a generous 6% each year over
the next ten years.

Can you protect yourself against the LTA charge?

While exceeding the LTA might be a nice problem to have,
it does present a number of difficult choices if you wantto
avoid paying the associated charge. You could set up one
of two protection arrangements set up by the government,
but they come with certain conditions:

Fixed Protection allows you to lock into the current lifetime

allowance of 1.25m (and benefit from future falls in the LTA).
You can apply for Fixed Protection regardless of your current
pension fund size. However, you will have to give up your
pension savings (including any final salary pension accrual
from 6 April 2016) which is a major drawback if you benefit
from your employer paying into your pension.

Individual Protection If your pension fund is valued at between

1m and 1.25m you can lock the value in the day before the 1m
comes into effect. The locked in value becomes your personalised
LTA and remains in place regardless of any future falls. You can
continue to save into your pension with this protection.

The right option for you will depend on your individual

circumstances. Thats why its essential to seek appropriate
financial advice when it comes to your pension planning.
Please get in touch to nd out how the LTA affects you.
HM Revenue and Customs practice and the law relating to taxation are complex
and subject to individual circumstances and changes which cannot be foreseen.

Seneca Reid Limited

Thremhall House,
Thremhall Park, Start Hill,
Bishop's Stortford,
Hertfordshire,
CM22 7WE.
01279 874480
info@senecareid.co.uk
www.senecareid.co.uk

COPEN1248 Exp. 31/03/17

Lifetime Allowance