UnaVida | Large Pensions and Lifetime Allowance

Large Pensions and Lifetime Allowance

Large pension funds need to consider the Lifetime Allowance, that is the total value you can accumulate in pensions before incurring additional tax penalties. The Lifetime Allowance (LA) was introduced in 2006/7 at £1.5M, the LA figure has changed over the years and it was reduced to £1M in 2016/17. However, for future tax years this will be increased inflation (CPI), so for 2017/18 the LA is £1,030,000.

How is the charge triggered?


Normally you can take 25% of your overall pension as a tax free lump sum, however that is providing you don’t exceed 25% of the LA. Any lump sum you take over this amount will be taxed at 55%.
Despite this, it may still be advantageous for you to take monies as a lump sum and suffer this tax penalty, if you are an additional rate tax payer.


If your accumulated pension funds are in excess of the LA, then you will have a 25% tax charge taken from any withdrawals before any monies are taxed at your marginal rate. Let me explain, if you want an income of £60,000, then you would need to request a payment of £80,000. Then the reduced £60,000 would be taxed at whatever tax your personal tax bands dictate.


You could consider investing some monies into EIS or VCT’s, as this would enable you to claim 30% of tax rebate for any amounts you invest. That will offset some of the tax you pay.


I understand that many adviser’s infer that you should not change the way you invest your pension when your accumulated pension is approaching or goes beyond the level of LA. I wonder if that is a sensible course of action.
It’s our belief that anyone considering taking withdrawals from their pension should radically change the way in which they invest their funds and move to an investment asset allocation that is sustainable, that means that you should re-appraise all of your fund choices to ensure that the choices support your election to withdraw funds on a regular basis, you should also consider aligning your choices help to safeguard against inflation.
If you do have a large pension fund and arrange your choice of funds correctly , you and your adviser will have created an (almost) perfect money machine that will not run out of money.

If this is what you would like to find out more about, why not get in get in touch either by use of our contact tab or telephoning Ruth on 01189 347 920.

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A pension is a long-term investment that typically cannot be accessed until age 55 (57 from April 2028). The level of pension benefits offered could change depending on the value of your investments (and any income they may generate).

The interest rates in effect at the time you begin receiving benefits may also have an impact on your pension income. The tax consequences of pension withdrawals will depend on your unique situation. In later Finance Acts, tax rates, tax bases, and tax relief may change.

The opinions expressed by Ray Best are meant to inform and educate. Before making any investment decisions always take advice that is pertinent to your investment personality and financial situation.

You are aware that past performance will not necessarily be repeated in the future, but you should be aware that persistent poor performance invariably will.

The value of an investment and the income from it could go down as well as up.

The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

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The guidance in this website is primarily aimed at a UK audience and is subject to regulation by the Financial Conduct Authority (FCA).

The Financial Conduct Authority does not regulate tax planning, estate planning, or wills and any form of legal documentation.