Broadly a Lifetime Allowance of £1m is equivalent to an annual pension of £50,000, or a pension of £43,478 with tax free lump sum of £130,000. This means that people earning around £66,000 who retire after a full career could face a tax charge.
From April, 2016, the total amount that can be invested in a pension will reduce from £1.25m to £1 mn as announced in the recent Budget. From 2018-19, the Lifetime Allowance will be increased by inflation based on the Consumer Prices Index.
While the exact numbers can only be estimated, MyCSP believes that the number impacted across the public sector could be as high as 100,000.
For members who may be affected by the Lifetime Allowance changes, MyCSP is advising them to take advice and consider the advantages and disadvantages of applying for new protections which will be made available.
The transitional protection that will be provided in respect of the April 2016 reduction is expected to be similar to previous protection regimes. Broadly:
- A protection that will protect the value of pension savings at April 6, 2016, but future contributions and investments will be taxed at 55 per cent
- A protection that will protect existing savings at April 6, 2016, and any future investment growth up to £1.25m, but further contributions will not be allowed.
Virginia Burke, business development director, MyCSP, said “Our estimates show that nationally around 100,000 people in public sector schemes might be impacted by the latest reduction in the Lifetime Allowance. Our role is to support members and employers through this change by providing seminars and one-to-one sessions as the consequences can be very significant. An individual may be faced with a significant tax charge on their pension and employer’s may have an issue whereby senior employees consider retiring early.”