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Are you walking into a pensions tax trap?
However, it is not all bad news. The recent resolution announced following the McCloud discrimination ruling will actually reduce many individuals’ LTA positions and the rate of future LTA growth, whilst also leaving many better off in retirement (due to the lower retirement ages of the legacy schemes and the automatic lump sum attached to the 1995 Scheme). As such, some individuals may find that their LTA problems are a little further away, or perhaps a bit smaller, as a result of these changes.
Furthermore, it is also fair to say that one form of LTA planning is to take your pension earlier. Therefore, this freezing of the Lifetime Allowance could be yet another example of pension legislation that inadvertently drives a number of doctors to consider retirement, or at least change their working patterns, earlier than they otherwise might have.
Ultimately, for those still celebrating the end of the tapered Annual Allowance calculations (following the increased thresholds introduced from 6th April 2020), this recent change to the LTA means that many will have to dust-off their NHS pension files and reconsider their pension position and retirement plans.
It should be noted that proximity to the LTA does not automatically mean that it is sensible to opt-out of the scheme, and for many that will not be the right course of action. However, if you are accruing pension benefits that may ultimately suffer two or three layers of taxation – Annual Allowance, Lifetime Allowance and Income Tax – you should take time to develop an appropriate strategy to ensure you are getting value for the pension contributions you pay.
If you would like to find out more about how we can help, please contact us and a member of the team will be in touch.
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