Will new changes to final salary pensions affect you?

The pension Lifetime Allowance (LTA) was abolished on 6 April 2024. If you are thinking, “this change doesn’t affect me, my pension isn’t worth £1mn”, you could be mistaken. Even if your pension is not over the £1,073,100 threshold, this change may still affect you.

 

What are the new rules?

The Lump Sum Allowance (LSA) and the Lump Sum and Death Benefit Allowance (LSDBA) have replaced the LTA. These new rules came in due to the publicity surrounding issues with doctor’s pensions. But it has also affected many high earners and people with long service.

If you have already taken benefits from a final salary pension (regardless of the size) or with fixed/individual protection, the LTA change could have knock-on effects for you.

When taking benefits from a Defined Benefit (DB) pension, tax-free cash was normally taken. However, with the new rules, it means the amount of tax-free cash could now be assumed to have been much higher than you actually received, thus costing you a lot of tax.

If you have given away part of your pension in a divorce settlement, the LTA change may affect you too.

Transactional Relief may be available, so act now and speak to a financial adviser. Otherwise, you risk missing out.

You can apply for something called ‘Fixed Protection 2016’, which may help you keep the old, outgoing standard LTA figure of £1.25mn. There are application conditions, but our advisers can help you check if this works for you and your pension.

These are not the only changes from the LTA change. Depending on how you receive your regular monthly pension payments, your most recent April 2024 payment may have already cost you a lot more than you think.

If you already have an active financial adviser, they should have told you about these changes occurring.

If you think you could be affected, act now.

Please call us on 01480 869466 for a free initial, no obligation chat.

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April 2024  |   1 minute read