Malcolm McDowell, Private Wealth Manager and international pensions expert at Chase Buchanan Wealth Management, has introduced a specialist advisory service following the surprise abandonment of the Lifetime Allowance (LTA) during the Spring Budget.
Malcolm advises that while the initial outcomes of removing the LTA may provide tax advantages for financial advisory clients, industry professionals need to be conscious of the long-term impacts on pension risk profiles and the likelihood of further reforms that may inform current decision-making.
Lifetime Allowance Reform Considerations
Jeremy Hunt's announcement of the LTA removal in March was unanticipated, although he was widely expected to confirm changes to annual allowances for pension savers. While this did happen, the Chancellor also stated that the £1.073 million cap was scrapped, effective immediately.
Perceptions have generally been positive, where advisers and high-income clients stand to benefit. Still, rather than making pension planning and retirement saving ‘easier’, this adjustment may add complications to the mix.
Questions arising include the impacts on those with current pension products, including LTA protections, plus any possible revisions or technical changes while a formal legislative bill is pending.
Effectively, the LTA has been removed straight away and will be considered as such in 2023/24 tax affairs, but will not be officially abolished until 6th April 2024, with the potential that, should a change in government occur at the next general election, the LTA is likely to be reinstated.
While individuals have always had the option of extracting a 25% lump sum value from pension wealth tax-free, it is important to reiterate that the value exempt from taxation is frozen at 25% of the previous LTA, without any suggestion that this restriction will be revised.
It appears that the protections introduced in the 2006 reforms related to tax-free withdrawal rights will continue, but advisers should evaluate the efficacy and true value of protections already incorporated in pension products due to the considerable changes to pension taxation.
Practical Implications of the LTA Removal
As LTA advisory lead Malcolm McDowell says, "Like all tax reforms, the LTA removal throws up several interesting points, not least the advantages available to those with pension wealth approaching the previous cap, or assessing opportunities to transfer pension funds into overseas or private schemes.
On the face of it, removing the LTA is straightforward and largely positive. However, advisers should be mindful of the significant adjustments to client risk profiles and the fact that, whether or not the LTA is reinstated in the future, there remains a need to safeguard pension wealth from unnecessary tax liabilities.
While strategies such as shifting pension wealth into ROPS or SIPP schemes remain viable, the tax obligation arising at a crystallisation event has altered, and reacting swiftly could make a sizeable impact on the long-term finances and pension values of those expecting to restructure or access retirement funds in the months ahead.”
HMRC has confirmed that pension holders with fixed or enhanced protection, effective on 15th March 2023 and thereafter, will be permitted to accrue benefits from the 2023 tax year without sacrificing existing tax-free protected cash drawdowns.
However, individual pension protections which allow a higher tax-free lump sum value have yet to be thoroughly addressed.
Understanding the Long-Term Impacts of Scrapping the LTA
The Treasury says that abolishing the LTA will cost £135 million in 2023-24, rising to as much as £835 million in the 2029-30 tax period, ostensibly to avoid pushing professionals, specifically those in the medical sector, into early retirement to avoid hitting the LTA cap.
It has indicated that removing the allowance incentivises people to continue making pension investments and work to the standard state retirement age, but there are varied complications in tax planning.
Before 2006, an LTA cap did not exist, so these latest reforms reinstate the state of affairs beforehand, which may be a welcome change in direction, given that ahead of the Spring Budget, the LTA was expected to be frozen until 2026.
Malcolm suggests that advisers consider how to introduce viable transitions for those in varying positions post-retirement and approaching retirement while accounting for tapered annual allowances.
For example, an employee with sufficient income to take up the higher annual allowance of £60,000 will likely trigger the tapered contribution limits, which may mean they do not fully benefit from the higher thresholds. Among many other factors, the changes to pension protections and distortions that contradict the intention to encourage greater pension investment have created a complex environment.
Read more about Chase Buchanan - Malcolm McDowell, Lifetime Allowance Specialist, Launches Pension Planing Service Responding To UK Pension Tax Reforms
About Malcolm McDowell
Malcolm McDowell is an authority in pensions-related financial planning and provides comprehensive support to his clients as a portfolio manager with a robust range of accreditations, certifications and qualifications, including CySEC Advanced credentials. Malcolm has launched the new LTA advisory service and free downloadable lifetime allowance guide for pension savers who potentially benefit the most from tactical pension planning to maximise the LTA limit removal.
About Chase Buchanan Private Wealth Management
Chase Buchanan is a highly regulated wealth management company who specialises in providing global finance solutions for those with a global lifestyle. We are global financial advisers, supporting expatriates around the world from our regulated European headquarters, and local offices across Belgium, Canada, Canary Islands, Cyprus, Malta, Portugal, Spain, UK and the USA.
Chase Buchanan Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission with CIF Licence 287/15.
Media Contact:
Malcolm McDowell
Chase Buchanan Ltd
+44 (0) 1252852045
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Source Company - https://chasebuchanan.com/
