Pensions Lifetime Allowance (LTA) Changes - Are You Ready?

МAKING THE DECISION OF A LIFETIME: Pensions Lifetime Allowance at a glance Are you a committed saver putting regular sums into your pension? The Lifetime Allowance (LTA) limit is changing with the 6th of April 2016. Find out if you will be affected by the change and consider what you should do next. There are a multitude of factors to consider and variety of solutions that might be appropriate. Here's the Lifetime Allowance at a glance: WHAT IS MY Lifetime Allowance? The LTA is the total amount of benefit that can be drawn from all your pension plans without triggering an excess tax charge. My Pension Pot CONTRIBUTIONS Your contributions and your employer's contributions (if applicable). TAX BENEFITS Your annual allowance for INVESTMENT RETURNS Based on your fund's investment performance. The Lifetime Allowance charge is: 25% of any amount you take from your pension savings as pension income that exceeds the Lifetime Allowance. Remember 55% ТАX your income will also be subject to income tax. 25% ТАX 55% of any amount you take from your pension savings as a lump sum that is over the Lifetime Allowance. £1.25m £1m WHAT ARE THЕ СНANGES The Lifetime Allowance is dropping from £1.25m to £1m. APRIL WHEN: 6 April 2016 2016 DIFFERENT STRATEGIES for Different People There's lots to consider and it's important to understand the changes and implications in order to make the right decision based on personal circumstances. Take a look at what's changing and what you can do. To protect or not to protect? PENSION POT PENSION POT < £lm > £lm as at as at 5th April 2016 5th April 2016 Your pension pot is at or below £1m as at 5th April 2016 but there is a chance it could grow Your pension pot is above £1m as at the 5th April 2016 regardless of time left to retirement. to exceed £1m as retirement nears. What are my options? What are my options? CONSIDER CONSIDER INDIVIDUAL DO NOTHING FIXED PROTECTION PROTECTION DO NOTHING. Continue as you are. PROS ב> You and your employer can continue contributing to your pension pot, which will remain inheritance tax-free. O CONS If your pension pot exceeds the LTA of £1 million you will incur tax charges on the excess and may need to consider more tax efficient saving options. EXAMPLES EXAMPLE ONE EXAMPLE TWO > Up to £1m pension pot. > £2m pension pot > No excess. > £1m excess. > No additional tax charges. > Lump sum incurs 55% tax: £550,000 to the state, £450,000 to you. > Income incurs 25% Can I keep saving? tax: £250,000 to the state, Yes, £750,000 to you (as income) plus income you can continue making pension contributions as tax on all additional income taken. normal. FIXED PROTECTION. Keep a £1.25m LTA allowance. 2 PROS You retain the higher £1.25m Lifetime Allowance on your pension pot and your pension remains inheritance tax-free. CONS You won't be allowed to make future pension contributions and could lose out on the benefits of employer contributions. EXAMPLES ΕΧΑMPLE ONE EXAMPLE TWO > Up to £1.1m pension pot. > £2m pension pot > £750,000 excess. > Lump sum incurs 55% tax: £412,500 to the state, £337,50 to you. > No excess. > No additional tax charges. Can I keep saving? > Income incurs 25% tax: £187,500 to the state, £562,500 to you (as income) plus income tax on all additional income Yes, but not in your pension fund - you will need to consider other tax taken. efficient savings methods, which may not be inheritance tax-free. CONSIDER INDIVIDUAL PROTECTION. Keep value of your current pot as your LTA (up to £1.25m max.) PROS You secure a higher Lifetime Allowance for your pension pot and continue with personal and employer contributions. Your pension remains inheritance tax-free. CONS You are subject to tax on any excess above your current LTA pension value, including fund growth and new money. EXAMPLES EXAMPLE ONE EXAMPLE TWO > Up to £1.1m pension pot. > £2m pension pot (valued previosuly at £1.1m). > No excess. > No additional tax charges. > £900k excess. > Lump sum incurs 55% tax: £495,000 to the state, £405,000 to you. Can I keep saving? > Income incurs 25% tax: Yes, but you will be taxed on anything above your personal LTA - you will £225,000 to the state, £675,000 to you (as income) plus income tax on all additional income taken. need to consider other tax efficient saving methods. The scenarios and examples above should give you some ideas, but when it comes to the LTA there are a multitude of factors to consider and a variety of solutions that might be appropriate. A Standard Life advisor can help untangle the complexities of LTA and help you choose a solution that suits you. Standard Life Savings standardlife.co.uk