The abolished LTA – a time-limited pension opportunity?

Introduction

Neil Richardson, Dental Regional Manager at Wesleyan Financial Services, shares how the Spring Budget’s biggest announcement can be addressed from a financial planning perspective…

In the Spring Budget, the Chancellor of the Exchequer, Jeremy Hunt, made a few shock announcements in regard to pension allowances.

The big hitter was that the £1.073 million Lifetime Pension Allowance (LTA) would not apply altogether from the 2023/24 tax year starting on 6 April 2023. A move the Chancellor said would mean an estimated 80% of NHS doctors will not receive a tax charge on pension savings. This, of course, also spelled good news for dentists who could also benefit from significant tax savings.

But is this too good to be true?

Putting the genie back in the bottle

The Labour Party has been very outspoken against the abolishment of the LTA, referred to by party members as a ‘gilded giveaway’, and has pledged to reverse the changes to tax-free allowances.

Those with their eye on the tax efficiencies of pensions will need to think about the next General Election in January 2025, which may present the possibility of a Labour government.

It’s worth considering should Labour reverse these changes, whether they will be applied retroactively or if the LTA will simply be reinstated from 2026. Could an incoming government backdate the changes, resulting in tax charges becoming due on pension savings that were non-taxable under the rules in place when those contributions were made?

The key issue is that the LTA has not been fully abolished – it won’t apply from the 2023/24 tax year, but until the correct legislation (Finance Act) has been put in place on 6 April 2024, we could be looking at a one-year-only tax holiday.

This puts those who are due to retire imminently (within the 2023/24 tax year) in a unique position, with the opportunity to crystalise (access and cash-in) their pension and sidestep the significant 55% tax charge that could impact pension benefits in excess of the LTA.

What needs to be considered?

In times where there is a perceived deadline, there is a heightened risk of hasty decision-making, especially when you aren’t armed with the facts or are influenced by the actions of peers.

As with any financial planning, due diligence needs to be undertaken to avoid potentially irreversible courses of action that may not be in your best interest when all is considered. The right course of action when it comes to exiting professional life will vary – what’s right for one person may not be right for you.

For doctors and dentists, accessing retirement provisions has an extra layer of complexity due to the variety of income streams available – whether that be the NHS pension scheme, a personal pension, investments, your private practice as a retirement nest egg, or a mixture of some or all of the above.

Your personal circumstances also play a key part in your readiness to retire. Do you still have financial dependents or are you still paying off your mortgage? Your household expenditure – household bills and essential spending – will dictate a certain threshold you need to meet.

Seek advice from specialists

One thing that can be taken from this uncertainty is that there’s never been a better time to review your retirement planning and pension provisions.

There are opportunities to be explored – you can  speak to Specialist Financial Adviser from Wesleyan Financial Services to make decisions from a fully informed position, helping to minimise the risk of unforeseen financial penalties in relation to your retirement plans.

Tax treatment depends on individual circumstances and may be subject to change in future.