Kylie Clark, Customer Experience Director, Wealthtime, brings you the third and final instalment in a 3-part mini series on the new tax year. This final piece explores the removal of the pension lifetime allowance and how advisers can help clients navigate the complexities surrounding it.
Removing the lifetime allowance was meant to simplify pension planning. In practice, it has created a different set of decisions for advisers to navigate.
The headline constraint has gone, but what has replaced it is not necessarily simpler. As the new tax year begins, annual allowances, tax-free cash limits, evolving death benefit rules and proposed inheritance tax changes are all influencing how advisers think about contributions, retirement income and legacy planning. The result is a system where sequencing and timing matter more than ever.
For clients, that complexity is creating uncertainty. According to Wealthtime research with Ad Lucem, 47% of advice-engaged investors with £50k+ investable assets cite uncertainty around rules and allowances as a major concern. Around 30% say they are unsure about pension rules specifically, highlighting the need for clear guidance at key decision points.
Managing the annual allowance
The annual allowance remains one of the most important levers in pension planning. The standard allowance is £60,000, yet tapering, earnings rules and access decisions all affect how much scope a client really has. This is particularly clear in tapered annual allowance planning, where contribution structure matters as much as contribution level. Individual contributions can sometimes reduce threshold income, whereas employer contributions do not influence the calculation in the same way.
The Money Purchase Annual Allowance (MPAA) adds a further constraint. At £10,000 it is less restrictive than before, but once triggered it still limits future defined contribution planning and removes the ability to use carry forward for money purchase contributions.
Carry forward continues to provide useful flexibility, especially for clients with uneven earnings, lumpy profits or late-stage capacity to contribute.
By giving advisers flexibility over timing, it can support planning discussions for clients whose income varies or who wish to make larger contributions later in their careers.
At the same time, lower allowances elsewhere in the system are making the interaction between pensions and wider tax planning more important. Contributions can still help reduce adjusted net income and restore the personal allowance. For families affected by the High Income Child Benefit Charge, reducing adjusted net income can also help bring income back within the child benefit thresholds, preserving some or all of the entitlement.
In some cases, contributions may influence outcomes on capital gains or bond gains by extending the basic rate band, depending on individual circumstances.
Legacy planning discussions
Since April 2024, the key pension limits have shifted towards tax-free cash, with the Lump Sum Allowance set at £268,275 for most individuals and the Lump Sum and Death Benefit Allowance at £1,073,100, subject to any protections. These limits are now central to retirement planning decisions. For some clients, they will influence the timing of withdrawals and how benefits are taken.
More significantly, the proposed extension of inheritance tax to most unused pension funds and death benefits from April 2027 is forcing a rethink in estate planning, even though the final legislation is still awaited. Because this would sit alongside existing post-75 income tax rules, double taxation could arise in some circumstances.
That is changing the long-held assumption that pensions should automatically be preserved for intergenerational planning. For some clients, advisers may explore using pension wealth more actively in retirement, the timing of tax‑free cash, gifting or the role of life assurance as part of a broader advice process.
Additional pension contributions can help reduce adjusted net income and restore part or all of the personal allowance where income exceeds £100,000, which can result in a high effective rate of tax relief in some cases, depending on circumstances.
Applying the rules in the right order
As the new tax year gets underway, the rules continue to evolve, but the bigger shift is how they interact. As a result, pension planning increasingly sits within wider tax and estate planning decisions, where sequencing and professional judgement, delivered through regulated advice, matter as much as the rules themselves.
All three parts are now available on the website, so be sure to check out Part 1 and Part 2!
About Kylie Clark
Kylie joined Wealthtime in April 2025 as Senior Operations Consultant, moving into the role of Customer Experience Director in October 2025. A strategic and operational leader with over 20 years of experience in wealth platforms, she brings with her a deep understanding of both adviser and customer needs, transformation readiness, and regulatory compliance.
