The annual increase in CPI to September 2017 has been announced as 3% so, unless any changes are made as part of the November Budget, the lifetime allowance will increase on 6th April 2018 to £1,030,000.
In addition, the state pension will also increase by 3% from April 2018 under the triple lock guarantee – good news for pensioners if not necessarily for the economy in general.
Although the lifetime allowance (LTA) increase doesn’t amount to very much it is still worth bearing in mind the slight advantage in waiting until after 5th April next year to crystallise pension benefits. Each time pension benefits are crystallised a percentage of the LTA is used up – based on whatever the LTA is at that point. By delaying the crystallisation of benefits until the LTA has increased, a smaller percentage of LTA will be used up.
- For example, if someone with no LTA protection crystallises pension benefits of £500,000 in 2017/18 they have used up 50% of their £1m LTA and have 50% (of whatever the LTA is at their next crystallisation) remaining.
- If they wait until 2018/19 they will only use up 48.54% and will have 51.46% (of whatever the LTA is at their next crystallisation) remaining.
Although this may not make a difference to many people, it’s important to bear in mind the effect of the timing of benefit crystallisations for clients with benefits close to the LTA in order to best manage and minimise any LTA charges. An additional £30,000 on the LTA can mean a saving in LTA charges of up to £16,500 (at the 55% rate).
The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
We have pension specialists available to advise should you be, or likely to be, in this position. Please contact us today to arrange a meeting.
