Personal Pension Lifetime Allowance

[JohnnyUK]

Hi All

I'm confused by the above.

In my simple mind, a "contribution" is what I and my employer have contributed to the pension.....

....but, I believe the Lifetime Allowance also includes capital growth i.e. investment returns from the pension fund provider(s) too?

So, for easy maths, let's say the Lifetime Allowance is 10,000. My contributions are 3,000 and the employer's are 5,000, then I still have 2,000 of my allowance?

Or do the pretend gains on the pension fund(s) of 2,000 wipe out my allowance?


Cheers

John

[Edible Roadkill]

It’s been removed as of April 2023.

The lifetime allowance is the limit on how much you can build up in pension benefits over your lifetime while still enjoying the full tax benefits.

It was set at £1,073,100

For now until whenever someone decides, there isn’t one.

[JohnnyUK]

Oh! How did I miss that!?!

Thanks!

[BobToc]

With the caveat that Labour has said they’ll reintroduce it.

I struggle a bit to see how they’ll do that while also catering for (i) the various senior public servants who are over the LTA and have decided it’s no longer worth working; and (ii) the people who have taken advantage of the change in the LTA to drop another £120k into their pension accounts. But that’s not to say they won’t do something punitive.

[Edible Roadkill]

Compound interest contributions were part of the previous lifetime allowance cap but as said that was removed in April.

Currently you can put £60k per tax year pension contributions into your pension and also utilise any years you didn’t maximise the limit.

It’s open to speculation whether a pensions LA cap will be reintroduced by a subsequent government.

[Edible Roadkill]

BobToc said:

With the caveat that Labour has said they’ll reintroduce it.

I struggle a bit to see how they’ll do that while also catering for (i) the various senior public servants who are over the LTA and have decided it’s no longer worth working; and (ii) the people who have taken advantage of the change in the LTA to drop another £120k into their pension accounts. But that’s not to say they won’t do something punitive.

Exactly, reversing it could push a large number of key workers into taking early retirement.

A parting gift for their wealthy mates from the Tory’s!?

[JohnnyUK]

Interesting, thanks all

[SunsetZed]

To my mind it's good that it's gone because people shouldn't be punished for making good investment decisions. To my mind the LTA just encouraged people that were getting near it to retire early and to de risk investments further than they would have because the tax charge made it not worthwhile therefore taking money away that would likely have been spent to boost our economy.

For me there should just be a control on contributions so if labour think the current situation is too generous then they should reduce the 60k per year part not re-introduce the LTA.

[ellroy]

Edible Roadkill said:

Currently you can put £60k per tax year pension contributions into your pension and also utilise any years you didn’t maximise the limit.

Sort of.

You can use the previous 3 years unused allowances, only if you’ve used this year’s fully and only to the previous cap that was £40k pa. So a max of £180k.

[Somebody]

ellroy said:

Sort of.

You can use the previous 3 years unused allowances, only if you’ve used this year’s fully and only to the previous cap that was £40k pa. So a max of £180k.

But only if you have at least £180k of earnings in the current tax year to cover the current annual allowance plus the carry forwards. You can’t put £180k in this year if your earnings are £40k, for example.

[Abdul Abulbul Amir]

Somebody said:

ellroy said:

Sort of.

You can use the previous 3 years unused allowances, only if you’ve used this year’s fully and only to the previous cap that was £40k pa. So a max of £180k.

But only if you have at least £180k of earnings in the current tax year to cover the current annual allowance plus the carry forwards. You can’t put £180k in this year if your earnings are £40k, for example.

But only if you had a qualifying pension arrangement in the years you wish to carry forward.

[Zigster]

Somebody said:

ellroy said:

Sort of.

You can use the previous 3 years unused allowances, only if you’ve used this year’s fully and only to the previous cap that was £40k pa. So a max of £180k.

But only if you have at least £180k of earnings in the current tax year to cover the current annual allowance plus the carry forwards. You can’t put £180k in this year if your earnings are £40k, for example.

Wouldn’t you also only get tax relief at your marginal rate? So, say, £100k of earnings and £100k pension contribution would mean £50k got 40% tax relief, £37k got 20% tax relief and £13k got no tax relief?

[Abdul Abulbul Amir]

Zigster said:

Wouldn’t you also only get tax relief at your marginal rate? So, say, £100k of earnings and £100k pension contribution would mean £50k got 40% tax relief, £37k got 20% tax relief and £13k got no tax relief?

Correct. Be aware that if paying in via salary sacrifice you need to stay above minimum wage.

[Jockman]

Lifetime Allowance removed but tax free lump sum capped going forward at 25% of the old lifetime allowance.

Sting in the tail.