Lifetime Allowance Examples

1. Final Salary – The unknown value

Background

  • NHS consultant with final pensionable pay of £125,000 looking to retire in 2014.
  • Will have 40 years service is 2014
  • Has private pensions worth £100,000 not drawn.
  • No fixed, enhanced or primary protection in place.
  • Currently has 100% of Lifetime Allowance left.

Result

  • Pension benefit = 40/80 x £125,000 = £62,500.
  • Lifetime allowance value (20 x) = £1,250,000.
  • Plus lump sum (3 x pension) = £187,500.
  • Total NHS benefits = £1,437,500.
  • Add private pension = £1,537,500.
  • Potential Tax bill = £287,500 @ 55% = £158,125.

2. The Lifetime Allowance Inbetweener – Some pension in payment

Background

  • Mr Q has drawn final salary benefits and used up 95% of the Lifetime Allowance.
  • Has a SIPP pension not in payment worth £70,000.
  • No fixed, enhanced or primary protection in place.
  • Currently has 5% of Lifetime Allowance left or £75,000.

Result

  • Currently, can draw £60,000 so no issues.
  • Post April 2014 the Lifetime Allowance drops to £1,250,000.
  • The amount that can be drawn becomes £62,500.
  • Drawing benefits after 2014 brings a lifetime allowance charge on £7,500 @ 55%.
  • Tax bill = £4,125.

3. The Lifetime Allowance Inbetweener – No pensions drawn

Background

  • Mr T has a SSAS benefit of £1.45m.
  • No other pensions so currently has 100% of Lifetime Allowance.
  • No fixed, enhanced  or primary protection in place.

Result

  • Currently, can draw £1.45m with no issues.
  • Post April 2014 the Lifetime Allowance drops to £1,250,000.
  • The amount that can be drawn becomes £1.25m.
  • Drawing benefits after 2014 brings a lifetime allowance charge against £200,000 @ 55%.
  • Tax bill = £110,000.

In each case I was able to intervene and save the client all of the tax payable. Why not find out what I can do for you. Get in touch here.