Lifetime pension allowance to be boosted in budget

[SebsCat]

Some details from page 100 of https://assets.publishing.service.gov.u ... t_2023.pdf

Extending working lives

4.153 Reforming pension tax thresholds – The government will increase the
Annual Allowance from £40,000 to £60,000 from 6 April 2023. Individuals will
continue to be able to carry forward unused Annual Allowances from the 3
previous tax years.

The government will increase the Money Purchase Annual Allowance from
£4,000 to £10,000 and the minimum Tapered Annual Allowance from £4,000 to
£10,000 from 6 April 2023. The adjusted income threshold for the Tapered Annual
Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.
The government will also remove the Lifetime Allowance charge from 6 April 2023,
before fully abolishing the Lifetime Allowance in a future Finance Bill. The
maximum Pension Commencement Lump Sum for those without protections will
be retained at its current level of £268,275 and will be frozen thereafter.

Not seen anything on IHT implications so the scrapping of the LTA would seem to amount to an easy way to pass on much more free of IHT - only limited by how quickly you can add to the pot.

[of course, "free of IHT" only applies if you die before 75, but it's still likely to be a very useful mechanism for those who die later and wish to pass on a sizeable income to multiple recipients]

[XFool]

Not seen anything on IHT implications so the scrapping of the LTA would seem to amount to an easy way to pass on much more free of IHT - only limited by how quickly you can add to the pot.

Thus completing the transition of personal pensions from pensions to (well off) family continuing ISAs?

[mark88man]

So much as predicted -

personally I will scrap my part time plan for 2023 now that I am not in the 60% zone (between 100K and 125K or so) as the increased AA will nicely mop that up and I will be left just into HRT - so a little extra for HMRC now but take home much the same. Will mean a more rapid retirement overall with probably just 6 months part time into summer of 24 but will see.

The LTA was not a short term concern for me but would have had a timing implication for some crystallisations, especially a DB that I can now take without juggling and will probably leave until 65 so no reductions.

[SebsCat]

Not seen anything on IHT implications so the scrapping of the LTA would seem to amount to an easy way to pass on much more free of IHT - only limited by how quickly you can add to the pot.

Thus completing the transition of personal pensions from pensions to (well off) family continuing ISAs?

Yep, it's a weird way of structuring things. Absolutely no reason why tax breaks designed to fund retirement should benefit future generations. Bound to be addressed by the next government.

[BigTim]

So the guidance for people nearing LTA to retire and crystalise is no longer of any use. So, more "when you're ready" and then use ufpls for withdrawals.

But

I think this puts the TFLS in the cross hairs for future budgets.

The "TF" bit of that acronym was already changed, it's the PCLS now. Yes I always fear it may be tinkered with in future.

I've changed my mind actually on contributing even more. My retirement plans have for a long time been predicated upon drawing an (UFPLS) income at/above the higher rate threshold - ie. dividend income from underlying portfolio - over 20+ years from age 57, with the underlying capital left for later life. So somewhere between £50,270 and £67,026 pa. The thresholds will move eventually but today's announcement doesn't really change that plan for me, and my portfolio is already on track to do that without further contributions.

Of course, thank you

I now see that they have already tinkered by freezing the PCLS at 25% of the old LTA value. Walking this down would seem to be the next wheeze? Meaning you could stack as much untaxed/tax relieved earnings in a pension but would be ever more limited on what you could take out without being subject to income taxes.

Giveth and taketh away, as always.

Congrats on your substantial fund. I recently pondered crystalsing and taking the maximum 25% if only as an LTA strategy (if I could hit the LTA "target" and check out of full time work). Now I suppose I might take enough to clear my residual mortgage (before the term on the offset expires). and take that same UFPLS route for the rest until the PCLS allowance is used up.

Of course, with some years to go until I could do any of this, I feel sure the PCLS will have been lowered considerably by then. Sigh.

[swill453]

I now see that they have already tinkered by freezing the PCLS at 25% of the old LTA value.

So any red-tape benefit of not having to monitor how much of your LTA has been used up is lost, as they (the pension cos) will have to monitor how much of your PCLS you've used up.

Scott.

[parallellines]

Oh dear. LPA gone. Maybe I should be annoyed as I took out enhanced protection 17 years ago so that the LPA didn't apply but it meant I then could not make any more contributions to my pension from then on. So for 17 years I made no pension contributions and now I find I could have

Still, never mind. It's a sensible move because now it will be difficult for Labour to reintroduce the LPA without having a new Enhanced Protection, whereas if he had simply increased it, it can then be subsequently reduced again.

It's unclear yet what happens to any increased entitlement to tax free lump sum that enhanced protection provides. All we know is that if you do pay contributions in then it will be limited to £268k. If the way your numbers work is that you can still take more, you may want to wait for the full story.

[Longtermyieldman]

Given the abolition of the LTA, what should someone do who has protected their LTA? I have Fixed Protection 2016 (£1.25m). Is there any reason I shouldn't subscribe the minimum amount to my pension in this tax year (£2880 net, £3600 gross) in order to lose the Fixed Protection? Or will it be cancelled without me having to do so? (albeit that getting the £720 tax rebate would be nice!) I should say the pension is not in drawdown of any kind and I'm not yet 55 so cannot access it in any event, and that its value currently exceeds £1.25m.

[scrumpyjack]

Oh dear. LPA gone. Maybe I should be annoyed as I took out enhanced protection 17 years ago so that the LPA didn't apply but it meant I then could not make any more contributions to my pension from then on. So for 17 years I made no pension contributions and now I find I could have

Still, never mind. It's a sensible move because now it will be difficult for Labour to reintroduce the LPA without having a new Enhanced Protection, whereas if he had simply increased it, it can then be subsequently reduced again.

It's unclear yet what happens to any increased entitlement to tax free lump sum that enhanced protection provides. All we know is that if you do pay contributions in then it will be limited to £268k. If the way your numbers work is that you can still take more, you may want to wait for the full story.

I have read the HMRC bulletin on this and Enhanced Protection (2006) also protects the 25% TFLS, (same applies to other protections)

https://www.gov.uk/government/publicati ... tax-limits

[genou]

Given the abolition of the LTA, what should someone do who has protected their LTA? I have Fixed Protection 2016 (£1.25m). Is there any reason I shouldn't subscribe the minimum amount to my pension in this tax year (£2880 net, £3600 gross) in order to lose the Fixed Protection? Or will it be cancelled without me having to do so? (albeit that getting the £720 tax rebate would be nice!) I should say the pension is not in drawdown of any kind and I'm not yet 55 so cannot access it in any event, and that its value currently exceeds £1.25m.

As I read the announcement, your FP16 will allow you to have PCLS up to 312k, so ~44k more than unprotected. If you give it up, you lose that. I'd wait for the dust to settle before you do anything to change your position.

The maximum Pension Commencement Lump Sum for those without protections will
be retained at its current level of £268,275 and will be frozen thereafter


4.153 of this - https://assets.publishing.service.gov.u ... t_2023.pdf

edit - I used 1.5m rather then 1.25 for the PCLS originally

[parallellines]

Oh dear. LPA gone. Maybe I should be annoyed as I took out enhanced protection 17 years ago so that the LPA didn't apply but it meant I then could not make any more contributions to my pension from then on. So for 17 years I made no pension contributions and now I find I could have

Still, never mind. It's a sensible move because now it will be difficult for Labour to reintroduce the LPA without having a new Enhanced Protection, whereas if he had simply increased it, it can then be subsequently reduced again.

It's unclear yet what happens to any increased entitlement to tax free lump sum that enhanced protection provides. All we know is that if you do pay contributions in then it will be limited to £268k. If the way your numbers work is that you can still take more, you may want to wait for the full story.

I have read the HMRC bulletin on this and Enhanced Protection (2006) also protects the 25% TFLS, (same applies to other protections)

https://www.gov.uk/government/publicati ... tax-limits

Thanks. So taking this at face value, there is still some value to protection, I suspect not for all who took protection, but for most. And that needs to be set against obtaining tax relief by restarting contributions.

[scrumpyjack]

It would certainly not be worth my restarting contributions as that would immediately mean I lose enhanced protection, and therefore lose the protected TFLS.

[Longtermyieldman]

Given the abolition of the LTA, what should someone do who has protected their LTA? I have Fixed Protection 2016 (£1.25m). Is there any reason I shouldn't subscribe the minimum amount to my pension in this tax year (£2880 net, £3600 gross) in order to lose the Fixed Protection? Or will it be cancelled without me having to do so? (albeit that getting the £720 tax rebate would be nice!) I should say the pension is not in drawdown of any kind and I'm not yet 55 so cannot access it in any event, and that its value currently exceeds £1.25m.

As I read the announcement, your FP16 will allow you to have PCLS up to 312k, so ~44k more than unprotected. If you give it up, you lose that. I'd wait for the dust to settle before you do anything to change your position.

The maximum Pension Commencement Lump Sum for those without protections will
be retained at its current level of £268,275 and will be frozen thereafter


4.153 of this - https://assets.publishing.service.gov.u ... t_2023.pdf

edit - I used 1.5m rather then 1.25 for the PCLS originally

Thanks - I'm probably more interested in UFPLS than PCLS so reducing the latter by losing the LTA is likely to matter less to me than avoiding the LTA. Unless the LTA will be removed anyway, in which case there's only upside to me doing nothing...

[mc2fool]

Budget in full here: https://www.gov.uk/government/publications/spring-budget-2023 (before anyone gets into any other topics from it, can I just gently remind y'all that this is the Pensions - Practical Problems board )

Not sure if it's a potential twist, or indeed the "why" of it, but ....

"The Lifetime Allowance charge will be removed from April 2023 before the Allowance is abolished entirely from April 2024"

[ursaminortaur]

Given that governments clearly like to tinker with pension rules... i'm quite sure the LTA will be coming back down again at some point before people reach retirement age.

As it is many people will now be missing out on growth for the years they stopped contributing to their pensions for fear of breaching the LTA.

I'm sure you are right.

Taxing investment outcome in a pension makes little or no sense. Capping lifetime pension contribution makes more sense in order to set a ceiling on maximum tax avoided on money on the way into pensions. I doubt the idiots in charge will address this stupidity but there you go.

The reason that the LTA wasn't setup as a contribution limit was that HMRC didn't have the records of what everyone had been contributing over the last 40 odd years to all the different pensions with different employers that they might have been contributing to.

[scrumpyjack]

The reason that the LTA wasn't setup as a contribution limit was that HMRC didn't have the records of what everyone had been contributing over the last 40 odd years to all the different pensions with different employers that they might have been contributing to.

The other problem is that many defined benefit schemes do not involve a 'contribution' and there isn't a 'pot' for each individual. Instead there is a liability of the employer to provide certain benefits at certain future dates and the present actuarial value of that liability (or asset for the employee) can change massively depending on interest rates, expected inflation rates and estimates of what the future holds.

[SebsCat]

Not sure if it's a potential twist, or indeed the "why" of it, but ....

"The Lifetime Allowance charge will be removed from April 2023 before the Allowance is abolished entirely from April 2024"

I suspect that is simply an administrative point. Pension providers can simply change the charge rate to 0% on April 6th and then have a year to alter their systems to remove the LTA entirely whilst catering for the PCLS cap.

[moorfield]

I now see that they have already tinkered by freezing the PCLS at 25% of the old LTA value. Walking this down would seem to be the next wheeze? Meaning you could stack as much untaxed/tax relieved earnings in a pension but would be ever more limited on what you could take out without being subject to income taxes.

Indeed, the "25%" headline is effectively disappeared today, and now becomes a maximum amount of £268,275(*). Give it a year for the "old" LTA to be forgotten, and I agree, it now becomes another threshold that can be raised or lowered at whim in the future, in many wonderful ways. Canny Hunt.


(*) My quick calculation is that applied to my plan, it gives me roughly 16 years of tax free (UFPLS) income above the higher rate threshold. So yes, it works against me a bit more than I originally thought, certainly.

[JohnB]

I wonder how the Labour party will respond (I want them in power as while it would be bad for me financially, I want a competent government)

They could keep the lump sum under control, either inflation proofing or freezing it. They would struggle to reintroduce a new LTA, or a variant lifetime contribution limit.

The obvious thing would be to have flat rate tax relief. 20% sending the signal that £268k of tax free cash was the only perk, 30% would be more generous. Higher rate earners, standard rate retirees would get something, higher rate for both would not bother with pensions.

The higher paid might squeal, but you could pay doctors more with the money saved and there would be no gotchas.

And there is little people could do to game the system before its implemented, unlike LTAs

[JohnB]

Under a 30% system

BRT/BRT payer earns £100, loses £20 in tax, puts £80 in pension, gets £34 topup. Withdraws £26 tax free, and £62.40 after tax. So £88.40 in pocket rather than £80

HRT/BRT payer earns £100, loses £40 in tax, puts £60 in pension, gets £25.7 topup. Withdraws £21.40 tax free and £51.42 after tax, so £72.84 in pocket rather than £60

HRT/HRT payer earns £100, but only gets £38.56 after tax, so back with £59.96 in pocket, so cost neutral.

I rather like the elegance of the last result