HM Revenue & Customs has released new figures showing that the tax collected from individuals breaching the Lifetime Allowance (the amount of savings which can be built up in a pension and receive tax relief) has rocketed by £97m since it was introduced in 2006, with the latest figures showing that £102m in tax was collected from individuals exceeding the allowance during 2016/17, compared with £5m in 2006/7 when the Lifetime Allowance (LTA) was introduced.
WEALTH at work, a specialist provider of financial education and guidance in the workplace supported by regulated advice for individuals, believes that individuals who breach the LTA typically fall into one of the following three categories – and by highlighting this, it can help individuals identify if they are at risk.
The blissfully unaware
Who are these lucky people to have a pension pot valued at the current LTA limit of £1.03 million or more? It is quite possible that the value of someone’s pot is far higher than they realise and that they may have already breached the allowance. This could particularly affect those who never check the value of their pension, or haven’t done so for some time. Also, many individuals in defined benefit (DB) pension schemes are unaware that their pension is valued at twenty times their annual pension for LTA purposes and so an annual pension of £30,000 has a value of £600,000.
If a member of a DB pension scheme decides to transfer their pension into a defined contribution scheme to take advantage of the pension freedoms, the transfer values offered can be much higher than the standard method of working out the LTA value. For example, transfer values can be as high as forty times the annual pension, so using the above example, an annual pension of £30,000 could have a transfer value of £1.2m and therefore exceed the LTA.