Claire Trott, divisional director for retirement and holistic planning at St. James’s Place, has commented on the implications of a possible increase in the lifetime allowance.
She said: “The possibility of an increase in the lifetime allowance (LTA) will be welcomed by many who are planning to retire now. However, it won’t help those that already have access to their pensions in the same way. When a pension is accessed it is tested against the LTA at that point in time, so for the most recent years the amount of LTA used has been significantly higher than it would be under an LTA of £1.8m.
“For example, if someone took benefits of £1m in 2016/17 or 2017/18 then they would have used up 100% of their lifetime allowance and this increase won’t give them anymore.
However, should they take benefits of £1m under the leaked increase of £1.8m then this would only use up 55% of their lifetime allowance, giving them much greater scope for benefits.
“This again shows how the unpredictable changes in allowances such as this can be a real disadvantage to individuals. The way in which some can access benefits may well have pushed them into a situation where they had to access all their benefits in one go at a time which will have resulted in tax charges.”