Reaching the Life Time Allowance could be closer than your employees think.

15th October 2015

There are new limits to the Lifetime Allowance (LTA) that may affect your employees. The current allowance is £1.25 million. However, in the March Budget, the Government announced a reduction in the LTA to £1million from 6 April 2016.

Therefore, reaching the LTA could be closer than your employees think. For example, do your employees have a number of legacy schemes that when combined with their active pension provision could exceed the new reduced limit? Are they aware of the potential tax implications or what protections are available? Your employees may turn to you and ask for more help in understanding the consequences. Failure to take out the necessary protection could lead to them being hit with an unexpected tax bill.

The government announced in Summer Budget 2015 their intention to cut pensions tax relief for high earners by introducing a tapered annual allowance for those with incomes of over £150,000. The annual allowance is a limit to the total amount of contributions that can be paid into a pension scheme each year, for tax relief purposes. It is currently £40,000 but from April 2016, the government will introduce a taper to those with income over £150,000 (including the value of any pension contributions) and have an income in excess of £110,000 (excluding pension contributions). For every £2 of adjusted income over £150,000, an individual’s annual allowance will be reduced by £1 down to a minimum of £10,000. If net income is no more than £110,000, they will not normally be subject to the tapered annual allowance.

If your employees are high earners, they may be able to take advantage of the transitional arrangement announced in the Summer Budget which allows pension savings to be made in the current tax year of up to £80,000.

This is a complex subject and your employees may need considerable help.