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SPONSORED: Huge changes to the Lifetime Allowance

Published on: 13 Feb 2024

Huge changes to the Lifetime Allowance and Annual Allowance - and What This Means for You

Well, it looks like 2024 has started with a bang: here at Montgomery Charles, we have identified a policy change that could have enormous implications for anyone hoping to make the most of their retirement.

The change in question is the likely abolishment of the Lifetime Allowance. Make no mistake – this is a complicated and evolving area and the cost of taking action and getting it wrong, or taking no action at all, could be significant.

In short: if you have taken an NHS pension out in the last few years, you could be missing out on up to over £100,000 of tax-free cash if you don’t act immediately.

The good news? We’ve been planning for such a change for years, and we know exactly how to help.

So what’s going on?

The Annual Allowance and LTA were both introduced in 2006 to limit the tax benefits of pensions for people on both an annual and lifetime basis. Since then, there has been an overall trend to reduce the allowances available to individuals - both on an annual and lifetime basis - to ensure government coffers were not overly depleted through lost tax revenue.

Until now.

Rewind back to March 2020, and the uncertainty and worry that gripped the nation as the scale of the Covid-19 pandemic became apparent. The government wanted to encourage retired doctors, medical sector workers and other public sector champions to take up the mantle once again and help the country through its biggest crisis since the Second World War. Many were happy to do so, but were quick to point out the potential financial implications and large tax penalties they could face by starting to work again, and by (rightly) being re-enrolled as an active member in their respective public sector pension scheme.

 

Three years of pressure later (combined with a disastrous but fortunately very brief interlude from his predecessor), Chancellor Jeremy Hunt decided to remove the Lifetime Allowance.

By some, the Lifetime Allowance was viewed as a punitive limit on people doing the right thing (in saving for their future financial security and for having long careers) and so removing it would only be fair. Others saw the removal of the LTA as a cynical bid to win back votes – a view not helped by the last-minute nature of the policy, announced three weeks before the new tax year.  Two decades of policy, legislation and complicated layers of transitional protections and rules were seemingly being thrown out the window by a three-page summary and no detail on how it would be implemented.

Putting the political divisions aside, as an interim stop-gap, the government announced that the LTA would remain, but the charge would be reduced down from 25% or 55% to 0% from 6th April 2023 to 5th April 2024. Additionally, the annual allowance would increase from £40,000 to £60,000 (and the tapered annual allowance from £4,000 to £10,000).

Fast forward to the end of 2023, through one of the fastest ever financial industry consultations and a first round of draft legislation. We now have a lot more meat on the bones and over 100 pages of draft legislation to back it up. The LTA is notionally set to be removed entirely from 6th April 2024. The legislation is expected to receive Royal Ascent in mid-February 2024 and until then, the draft legislation is still very much that – in draft and subject to change. Even after Royal Ascent, the government has issued itself with powers to make further changes until April 2026.

Whatever your political views, it certainly presents a number of new and exciting opportunities for some - and we are actively advising our clients on where we have identified opportunities that apply to their situation. In particular we are seeing significant opportunity for people that have already accessed their NHS pension or are thinking about doing so in the near future.

Speak to an Expert

As mentioned, the legislation is still in draft at the moment and subject to change even after it receives Royal Ascent. This is a complicated and evolving area, and the cost of taking action and getting it wrong, or taking no action, could be hundreds of thousands of pounds.

With that in mind, we have created ‘LTA Clinics’ to help you find out more. These are no-cost, no-obligation chats with our advisers to help give you the best advice based on your personal circumstances. To book, visit montgomerycharles.co.uk and look for the Lifetime Allowance resource.

Every scenario needs to be evaluated on a case-by-case basis and as such, this article does not constitute financial advice.