Senior optometrists and opticians across the UK are being advised to take note of further changes to HMRC tax limits on pensions provision and consider whether they wish to take action to protect their pension.
From April 2016, the Lifetime Allowance (LTA) – the maximum amount of pension savings that an individual can amass and still qualify for tax relief over their lifetime – will reduce from £1.25m to £1m as announced in the recent Budget. Individuals who accumulated pension pots over £1m may face a tax charge of 55 per cent on any excess.
Broadly a Lifetime Allowance of £1m is equivalent to an annual pension of £50,000 or a pension of £43,500 with tax free lump sum of £130,000.
While these figures appear substantial, in reality many optometrists and opticians could be affected. Anyone who is a member of the NHS pension scheme retiring on a pension of £43,500 or more could breach the new LTA.
If you have worked for a number of employers it is the sum of all the pension pots accumulated that counts. However, the calculation is less obvious for Defined Benefit scheme members as most will not appreciate the notional pot of money that sits behind their final salary pension, which the HMRC calculates to be 20 times the annual pension for Lifetime Allowance purposes.
Transitional protection
Given the number of people that may be impacted, and the fact that in reality it is not the super wealthy that are exclusively affected, the government is expected to put in place what is called ‘transitional protection’ to safeguard the value of the pension pot that has already been built up. Transitional protection is quite complex and will almost certainly require consideration of the advantages and disadvantages once the full details are known.
Annual Allowance
As well as the Lifetime Allowance, pension savings are subject to an Annual Allowance. The Annual Allowance is the limit on the amount of pension saving you can make in any year before tax charges may apply. This was reduced from £50,000 a year to £40,000 a year from April 2014. Tax charges at your marginal rate of income tax are payable if the Annual Allowance is breached.
These issues are complex and we would advise contacting your employer or pension scheme if you think you may be affected; MyCSP offers a service to employers wishing to provide seminars and one-to-one briefings to affected members.
Virginia Burke, business development director, MyCSP Virginia, has 25 years’ pensions experience from a wide variety of roles in both the public and private sector, including a trade union, a police force and a consultancy