Are you up to date with the latest pension rule changes?

Saving in a pension is one of the most tax-efficient ways to invest for your future. But to many people, pension rules seem like a minefield – and the most recent changes in pension legislation have made this already complex topic even more challenging. So what do the latest changes mean, and could you be in a position to benefit with the help of a wealth planner?

Key pension questions to consider:

• How many different pension plans do you have?
• Could you lay your hands on the account details for each one right now?
• Do you know how much is saved in each one?
• How well are they performing?
• What are the charges and levels of risk for each plan?
• How much income will you need in retirement to live life the way you want?
• Are your pension funds and other assets enough to provide that income?

If you aren't sure of the answers to some of these questions, this could be an ideal time to review your pension and retirement plans, and recalibrate them to provide the future you want.

Recent changes in pension legislation

You may already be aware that the government has recently approved two key changes to pension rules. This has created an excellent opportunity for many to top up their pension savings, and take stock of what they’ve already got.

Firstly, the Lifetime Allowance (LTA) tax charge has now been removed, as of 6 April 2024. Previously, anyone withdrawing benefits from their pension fund above the LTA of £1,073,100 (or the applicable fixed protection amount) was subject to a tax charge. This could be either 55% or 25%, depending on whether they were taking a lump sum or income. The Spring Budget in March 2023 reduced this charge to 0%. More recently, the Autumn Statement 2023 confirmed that the LTA would be removed entirely from 6 April 2024, and this has now taken effect.

As a result, you can now theoretically add to your pension (within set limits) without worrying about a penal tax charge if you breach the old LTA. So if you have had to stop paying money into your pension fund to avoid this tax, there’s a chance to add more now.

Secondly, the maximum annual contribution is being increased from £40,000 to £60,000 – although this is reduced for high earners. It’s worth noting that this legislation could change again if a new government is elected – so the opportunity could be time-limited.

Who could benefit from this opportunity?

You could benefit from these changes in legislation if you:

• Would like to pay more money into your pension
• Have a pension fund above or near the previous lifetime allowance figure of £1,073,100, or a higher fixed protection amount
• Have stopped contributing to your pension and applied for fixed protection in 2012, 2014 or 2016
• Have one or more old pension funds that might be treated differently under the new rules
• Are aiming to retire within the next couple of years, or would like to retire even earlier than you’re currently planning
• Have already made withdrawals from your pension but then gone back to work
• Want to reduce the inheritance tax burden on your heirs
• Might inherit a pension soon.

A word of caution

At a glance, these legislation changes seem to make pensions an even more tax-efficient way to invest – but pensions are complex, and these new rules are not straightforward. If a new government is elected, there’s no guarantee that the LTA wouldn’t be reinstated, which could create issues if, for example, you use the current change to breach your fixed protection. Changing your pension contributions might also affect how you draw your salary.

This means it’s essential to get the right advice and consider your financial arrangements as a whole before making any decisions. Get in touch with your financial adviser or speak one of our Wealth Planners to see how these changes could affect you, and if you could benefit from this time-sensitive opportunity.