Pension lifetime allowance

Pension lifetime allowance

Author
Discussion

Franco5

Original Poster:

351 posts

67 months

Thursday 28th November
quotequote all
How do HMRC know if someone exceeds the pension lifetime allowance especially when their pensions are spilt across multiple providers? Are they getting data from the pensions companies?

TownIdiot

1,860 posts

7 months

Thursday 28th November
quotequote all
Franco5 said:
How do HMRC know if someone exceeds the pension lifetime allowance especially when their pensions are spilt across multiple providers? Are they getting data from the pensions companies?
The lifetime allowance has been abolished.


timbo999

1,360 posts

263 months

Thursday 28th November
quotequote all
TownIdiot said:
The lifetime allowance has been abolished.
Only for pensions put into payment after April '23. Also worth noting that if any of your pensions went into payment before April '23 the life time allowance applies.

And the answer to the question is that pension companies are required to calculate the percentage of the lifetime allowance each pension put into payment works out, and I assume HMRC keep a total and will know if you exceed the lifetime allowance.

okgo

39,400 posts

206 months

Thursday 28th November
quotequote all
Franco5 said:
How do HMRC know if someone exceeds the pension lifetime allowance especially when their pensions are spilt across multiple providers? Are they getting data from the pensions companies?
Likely because pension funds have a duty to report to HMRC as per ISA providers/banks etc etc.

Same way likely they manage the annual contribution limits etc?

Rufus Stone

8,355 posts

64 months

Thursday 28th November
quotequote all
timbo999 said:
Only for pensions put into payment after April '23. Also worth noting that if any of your pensions went into payment before April '23 the life time allowance applies.

And the answer to the question is that pension companies are required to calculate the percentage of the lifetime allowance each pension put into payment works out, and I assume HMRC keep a total and will know if you exceed the lifetime allowance.
Got any evidence for the claim in your first paragraph?

As far as I know pension providers have never notified HMRC of the percentage of the LTA used. They whole system relied on the honesty of the pension scheme member.

Edited by Rufus Stone on Thursday 28th November 13:17

timbo999

1,360 posts

263 months

Thursday 28th November
quotequote all
Rufus Stone said:
Got any evidence for the claim in your first paragraph?

Edited by Rufus Stone on Thursday 28th November 13:17
You're right... in April '23 it was abolished for pensions put into payment after that date, as of April '24 it was abolished entirely. I hadn't noticed as I hadn't crystalised any money since April this year.

Presumably there is no longer any requirement for pension companies to calculate and notify the percentage used anymore.

Rufus Stone

8,355 posts

64 months

Thursday 28th November
quotequote all
timbo999 said:
You're right... in April '23 it was abolished for pensions put into payment after that date, as of April '24 it was abolished entirely. I hadn't noticed as I hadn't crystalised any money since April this year.

Presumably there is no longer any requirement for pension companies to calculate and notify the percentage used anymore.
Pension providers need to notify the member of the Lump Sum Allowance percentage used now instead.

98elise

28,339 posts

169 months

Thursday 28th November
quotequote all
timbo999 said:
Rufus Stone said:
Got any evidence for the claim in your first paragraph?

Edited by Rufus Stone on Thursday 28th November 13:17
You're right... in April '23 it was abolished for pensions put into payment after that date, as of April '24 it was abolished entirely. I hadn't noticed as I hadn't crystalised any money since April this year.

Presumably there is no longer any requirement for pension companies to calculate and notify the percentage used anymore.
It's amazing how much pensions get dicked around with when you're supposed to be saving for possibly decades of retirement. The rules seem to change every year.

alscar

5,463 posts

221 months

Thursday 28th November
quotequote all
98elise said:
It's amazing how much pensions get dicked around with when you're supposed to be saving for possibly decades of retirement. The rules seem to change every year.
Don’t they just.
Be nice if just for once those that put more away for the future by being responsible don’t get treated as those that don’t.

Franco5

Original Poster:

351 posts

67 months

Friday 29th November
quotequote all
okgo said:
Likely because pension funds have a duty to report to HMRC as per ISA providers/banks etc etc.

Same way likely they manage the annual contribution limits etc?
Do they though?

I saw this “Where pension contributions have been made that exceed the maximum amount, it is important that you contact your pension scheme administrator as they will need to take action in order to ensure that the tax claimed from HMRC is adjusted as required. They will also advise you whether any excess contributions can be retained in the fund or will be returned to you.”
https://kb.taxcalc.com/2513

I can’t remember what it’s called but some pension schemes tax at source on excess contributions.

Franco5

Original Poster:

351 posts

67 months

Friday 29th November
quotequote all
alscar said:
Don’t they just.
Be nice if just for once those that put more away for the future by being responsible don’t get treated as those that don’t.
Agreed and it’s not just that but the incessant meddling by incompetent politicians and civil servants in an attempt to patch up all the policy strategy errors they make.

Rufus Stone

8,355 posts

64 months

Friday 29th November
quotequote all
Relief at source tax reclaims by the pension provider are by their nature reported to HMRC. There is also an annual report submission for pension arrangements operating this, be they personal or occupational schemes, and I believe that does contain the members fund value.

As far as I know, occupational pension schemes do not currently report any member details unless it required an Event Report, for example a contribution in excess of the annual allowance. SSAS's have to file an annual Scheme Return, which provides HMRC with some basic financial information but it's not specified to any member.

However, that is all changing from April 2025 when HMRC are demanding very specific details in respect of a member and their financial transactions within the pension arrangement. This applies to both SSAS's and SIPP's.

Guyr

2,316 posts

290 months

Friday 29th November
quotequote all
Pensions were left well alone for decades, then in recent years have been meddled with several times, both on ages for withdrawals and other recent rules. It leaves me very unsure of the value of a pension scheme at all when adding in the uncertainty over many decades especially for someone currently young.

My daughters are 19 and 21 and just starting careers, I'm very tempted to advise them to not use pensions, but to use ISAs and other means of saving, since the tax advantages of pensions are often very small (or zero), but are offset against the inflexibility, changing rules and and ever increasing age for withdrawal.

keo

2,252 posts

178 months

Friday 29th November
quotequote all
But ISA’s could just as easily be messed about with. I hedge my bets and go with both personally as I don’t know what will happen in the future.

SunsetZed

2,493 posts

178 months

Friday 29th November
quotequote all
Guyr said:
Pensions were left well alone for decades, then in recent years have been meddled with several times, both on ages for withdrawals and other recent rules. It leaves me very unsure of the value of a pension scheme at all when adding in the uncertainty over many decades especially for someone currently young.

My daughters are 19 and 21 and just starting careers, I'm very tempted to advise them to not use pensions, but to use ISAs and other means of saving, since the tax advantages of pensions are often very small (or zero), but are offset against the inflexibility, changing rules and and ever increasing age for withdrawal.
I don't disagree with a lot of what you've said but employer contributions to pensions can be a key reason to use pensions.

mikeiow

6,329 posts

138 months

Friday 29th November
quotequote all
Guyr said:
Pensions were left well alone for decades, then in recent years have been meddled with several times, both on ages for withdrawals and other recent rules. It leaves me very unsure of the value of a pension scheme at all when adding in the uncertainty over many decades especially for someone currently young.

My daughters are 19 and 21 and just starting careers, I'm very tempted to advise them to not use pensions, but to use ISAs and other means of saving, since the tax advantages of pensions are often very small (or zero), but are offset against the inflexibility, changing rules and and ever increasing age for withdrawal.
I (personally) feel that would be very bad advice.

Firstly, almost regardless of meddling, there is MASSIVE value in having “time in the market” with any long term savings.
One of the James Shack videos illustrates how someone who puts in £5k pa in their 20s for just 10 years will beat someone who puts the same in from their 30s until they reach 65 - the power of compounding is enormous. Can’t easily find it, but scroll to the scenarios here to see similar information.

I stressed that to ours early on…now mid- to late- 20s with funds building up nicely.

Secondly…right now there is still tax advantage to be had. Nobody can tell where that will go in the future, but Governments will meddle at their risk. We saw all the “Rachel Thieves” comments prior to the budget suggesting tax breaks for high rate payers would be removed…..& yet they weren’t. Maybe “even Labour” understand some things work as they are.


All that said, there is a balance to be had. Young people need to live fun lives: spend for today as well as save for tomorrow.
If they want to buy a house one day, making use of LISA savings for deposits makes enormous sense - free money!
If they want to build savings for other things, perhaps including giving them cash to enable them to retire early in a distant future, then certainly add to an ISA.
…BUT not at the expense of pension funds too.

Spread the bets. & when it is for the long term, my firm guidance is to go with low cost investments, probably using global trackers.

But that’s just my view.
For those of us who have been lucky to save and perhaps retire early, I feel it is our role to pass on sage wisdom to help them along their way. Nobody else seems to do it…

YouWhat

142 posts

85 months

Friday 29th November
quotequote all
Guyr said:
Pensions were left well alone for decades, then in recent years have been meddled with several times, both on ages for withdrawals and other recent rules. It leaves me very unsure of the value of a pension scheme at all when adding in the uncertainty over many decades especially for someone currently young.

My daughters are 19 and 21 and just starting careers, I'm very tempted to advise them to not use pensions, but to use ISAs and other means of saving, since the tax advantages of pensions are often very small (or zero), but are offset against the inflexibility, changing rules and and ever increasing age for withdrawal.
That would be the worst advice you could give anyone you love. Given the same investment vehicles the pension wrapper would massively outperform the ISA wrapper over a working life. Instant 20/40/45% uplift on contributions, free money from employer which may include NI savings for them.

alscar

5,463 posts

221 months

Friday 29th November
quotequote all
If your working children get offered to join a Pension scheme which their employee contributes to then they should grab that with both hands.
Doesn’t matter how small it may be.
If they have any spare money left over each month then also starting an ISA if they don’t already have one is also to be recommended.
Whilst rules for both have the ability to get changed ( and Labour have another 3 attempts in which to do so ) neither will be abolished.

omniflow

2,897 posts

159 months

Friday 29th November
quotequote all
YouWhat said:
Guyr said:
Pensions were left well alone for decades, then in recent years have been meddled with several times, both on ages for withdrawals and other recent rules. It leaves me very unsure of the value of a pension scheme at all when adding in the uncertainty over many decades especially for someone currently young.

My daughters are 19 and 21 and just starting careers, I'm very tempted to advise them to not use pensions, but to use ISAs and other means of saving, since the tax advantages of pensions are often very small (or zero), but are offset against the inflexibility, changing rules and and ever increasing age for withdrawal.
That would be the worst advice you could give anyone you love. Given the same investment vehicles the pension wrapper would massively outperform the ISA wrapper over a working life. Instant 20/40/45% uplift on contributions, free money from employer which may include NI savings for them.
For a bit of balance - pensions up to the point where employer contributions / matching stops increasing, then ISAs. With a pension, you're paying tax on the way out and you can only access it when you get to a certain age. With ISAs, there's no tax to pay and you can access whenever.

YouWhat

142 posts

85 months

Friday 29th November
quotequote all
omniflow said:
For a bit of balance - pensions up to the point where employer contributions / matching stops increasing, then ISAs. With a pension, you're paying tax on the way out and you can only access it when you get to a certain age. With ISAs, there's no tax to pay and you can access whenever.
So you’re happy to miss out on the 20/40/45% uplift because it’s tax free on the way in. Compound that over 30 plus years makes a huge difference over ISA. Don’t forget the tax free lump some as well up to £268,275.

Edited by YouWhat on Friday 29th November 10:32