What does this mean for you? Well, the removal of the lifetime allowance has ultimately made defined contribution pensions more appealing for wealth transfer. This benefits those over 55 who plan to leave their tax-free lump sum intact with their pension to maximise the benefits.
What does the removal of the pension lifetime allowance (LTA) mean for me?
In the Spring Budget 2023, Jeremy Hunt announced the removal of the pension lifetime allowance (LTA). This change has made defined contribution pensions even more appealing for wealth transfer
Removing the LTA charge allows for an unlimited sum tax-free* for those who pass away before the age of 75. After 75, the sum will be subject to taxation at the beneficiaries marginal rate.
*An LTA check still takes place to work out available tax-free pension cash and taxation on certain lump sum payments, even though the charge has been removed.
Do you plan to access your tax-free pension cash?
Accessing your tax-free pension cash is a great way to pass on wealth and mitigate Inheritance Tax (IHT) charges. A whopping 30% of over-55s say they were unaware of this. So please, spread the word.
Will my loved ones benefit from my pension?
Ensure your chosen beneficiaries reap the rewards of your pension with these 4 tips.
Check if your pension offers death benefits
Not all pensions provide the same level of flexibility when it comes to death benefits. It’s worth checking with your provider to see if your pension plan allows you to pick the beneficiaries who will inherit your pension savings.
Specify your beneficiaries
You may be surprised to know that a Will doesn’t usually control who inherits your pension savings. Instead, your pension provider or trustees tend to have the final say in this instance.
Name your beneficiaries directly with your employer or pension provider to ensure your wishes are considered in the event of your death.
Regularly review your beneficiaries
Major life events (we’re talking babies , marriage or divorce) can impact where you want your pension savings to go. By keeping your beneficiaries up to date, you can ensure your desired recipients are considered first when it comes to distributing your pension savings.
Consider the tax implications
Pensions are not typically subject to Inheritance Tax. As such, they can be a tax-efficient way to pass on your wealth. With the removal of the Lifetime Allowance charge, pensions pose an even more attractive option for passing on funds to your loved ones.
Of course, it’s essential to consider any potential tax liabilities your beneficiaries may face when receiving your pension funds.
Will you make the right decisions around your pension pot?
The removal of the pension lifetime allowance has made pensions an even more attractive place to save if you’re concerned about Inheritance Tax.
Of course, there are still restrictions around what can be contributed and withdrawn. To help make sense of it all, chat to someone from our team.
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