Planning for your golden years

There were murmurs that the lifetime allowance (LTA) for pensions would increase from £1,073,100 by maybe around £250,000, but the government surprised everyone by scrapping the LTA altogether as of 1 April 2023.

What does this mean?  Simply that, instead of paying 55% tax on every pound in your pension above the LTA, you can now put as much as you like into your pension with no tax to pay.

Admittedly, people who have pension pots in excess of £1 million tend to fall into the 'high net worth individuals' category, but as salaries rise with inflation, bonuses get bigger and sensible execs fill up their pensions to ensure they don't have to lean on the State at retirement (supposing a state pension still exists).

This is a Conservative government strategy and, if the government changes, the incoming party may reverse it or bring in a revised LTA.  However, there is protection for anyone who has increased their pension during the allowed period, so even if a LTA is reinstated, existing pensions won't be subject to whatever the new tax is.

The impact on business

Highly paid senior executives may take the opportunity to exit their company and retire early, or to move on and top up their pension with the golden handshake.

Company owners who are thinking about selling up and retiring in a few years' time may take advantage of this opportunity and move their plan forward, putting the proceeds of the sale into their pension to keep them comfortably through their extended retirement years.

As older staff retire earlier there will be opportunities for new talent to fast track their careers.

Pension top ups

You may need to take into account that there is an annual allowance for how much you can put into your pension each year without paying additional tax.  This rose from £40K to £60K on 6th April 2023.  However, this is projected to apply only for a limited period of time, so take advantage while you can.