Staying on top of the pensions tax rules is an important part of managing a pension. But the provisions can be disconcertingly complex. Karen Goldschmidt, partner at LCP, unpicks some of the tax complexity surrounding the annual and lifetime allowances
Tax incentives for locking income away in a pension scheme until age 55 or beyond are generous. But then comes the annual allowance (AA) and lifetime allowance (LTA), government measures aimed at higher earners.
Save too much in a single year or accumulate too much by retirement, and extra tax applies, eating away at the incentives. Ever increasing numbers of individuals (and their advisers) face the task of considering how actions and options trigger or change an AA or LTA tax, what that tax would be and the best way to pay it. The complexity of the allowances is fiendish so here’s a few guidelines.
Overall, for tax planning in the pensions world, it is essential not to focus on minimising tax; but instead on how to get, net of taxes applying, the best outcome from all the options available while avoiding any major pitfalls along the way.
