Abolition of the pensions Lifetime Allowance (LTA)
The LTA, which previously put a cap on the amount of tax-advantaged pension rights that you could build up without incurring punitive tax charges, has now been abolished.
The tax-free lump sum allowance remains £268,275 (25% x £1,073,100, the old LTA) unless the member holds a higher level of protection from when the LTA had previously been cut.
Planning points
- For those with large pension pots, the abolition of the LTA charge may change
- the timing of your retirement; or
- the level of contributions you might want to make before retiring.
Example – Angelo
Angelo is aged 58. He is employed at a senior level in his company and receives an annual salary of £210,000 (plus bonuses). He has a pension pot worth £990,000 but has no form of LTA protection in place.
In March 2022, he opted out of payments into his company pension scheme, given that he was getting close to exceeding the LTA and was therefore facing a LTA charge. [Note that the AA was £40,000 for 2022/23.]
He plans to retire in early 2025.
- In view of the removal of the LTA charge, Angelo can have further inputs to his employer’s scheme.
- So, carrying forward his two years’ worth of unused AA relief, he can have total pension inputs of up to £60,000 + £60,000 + £40,000 = £160,000 for 2024/25.
Note that the Labour government has confirmed that the LTA will not be reintroduced.