Pension: Expert explains what a lifetime allowance is
Before April 6, Britons who withdrew money from their pension that exceed the lifetime allowance threshold of £1,073,100 were taxed 55 percent for a lump sum, and 25 percent through pension payments or cash withdrawals. However, in his Spring Budget last month, Chancellor Jeremy Hunt announced the Government’s decision to remove the Lifetime Tax Allowance (LTA) charge. But do you agree with the Government’s decision? Vote in our poll.
The LTA is the total amount of money you can build up in pension savings without incurring a tax charge. The limit was previously frozen at £1,073,100 but Mr Hunt has chosen to abolish this from the 2024/25 tax year.
The change means that in the future Britons will be able to save an unlimited amount without extra tax penalties when they withdraw money.
The policy hopes to stop professionals from reducing their hours or retiring early to avoid the LTA charge.
Mr Hunt said: “These changes will stop over 80 percent of NHS doctors from receiving a tax charge and incentivise our most experienced and productive workers to stay in work for longer. It will simplify our tax system, taking thousands of people out of the complexity of pension tax.”
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Becky O’Connor, Director of Public Affairs at PensionBee told Express.co.uk last month, that while the allowance rise “might not make a difference to the vast majority of workers or retirees with more typical pension pot sizes and annual contribution amounts”.
She added that “the increases are likely to be welcomed by senior NHS consultants, who were being penalised for working longer by pension taxes under the previous allowances and were leaving work early as a result”.
However, Stuart Lee, chief executive of Rest Less, has criticised the decision as “absolutely pointless”. He said: “For the majority of people, the reason they left the workplace is not due to a lack of tax incentives on their pension, but rather a lack of access to relevant and flexible work which can fit around the sometimes complex and myriad other responsibilities faced by this demographic.
“The Government would do far better helping to challenge outdated ageist stereotypes and incentivising businesses to hire midlife employees and build large scale attraction, retraining and retention programmes for more experienced workers.”
So what do YOU think? Do you agree with the lifetime allowance on pensions being removed? Vote in our poll and leave your thoughts in the comment section below.
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