Welby Associates

The New Era of Pension Allowances: Understanding the End of the Lifetime Allowance

The recent abolition of the Lifetime Allowance (LTA) for pensions marks a significant shift in retirement planning and wealth management in the UK. This move, set to reshape how individuals approach their pension savings, ushers in new rules and opportunities for affluent investors. As we delve into this new landscape, it’s crucial to understand both the implications of these changes and the strategies that might emerge.

Background: The Role of the Lifetime Allowance

Until its abolition, the LTA was a cap on the amount that could be built up in your pensions without triggering an extra tax charge. Set at £1,073,100, the LTA aimed to limit the tax-privileged growth of pensions. For high earners and diligent savers, this often posed a complex hurdle in retirement planning.

The Abolition of the Lifetime Allowance

The decision to scrap the LTA was primarily driven by the desire to simplify the retirement savings landscape and potentially encourage higher levels of personal saving for retirement. The abolition is expected to have several direct impacts:

  1. Increased Flexibility in Pension Contributions: With no cap on tax-free pensions savings, individuals may feel more at ease to invest significantly in their pensions without worrying about breaching the LTA limit.

  2. Enhanced Retirement Planning: Investors can now consider more aggressive growth strategies for their pension funds, as the tax implications of exceeding the LTA no longer apply. This can be particularly beneficial for younger investors who have more time to benefit from compound growth.

  3. Potential for Higher Retirement Incomes: The removal of the LTA may lead to higher pension pots at retirement, especially for those who are able to maximize their contributions over an extended period.

Introduction of the New Pension Allowances

To balance out the removal of the LTA, new pension allowances have been introduced. These changes are designed to manage the extent of tax relief available for pension contributions in a different way:

  1. Lump Sum Allowance (LSA): From April 2024, the LSA will set a £268,275 limit on tax-free lump sums. This change aims to simplify how people access their pension funds.

  2. Lump Sum and Death Benefit Allowance (LSDBA): The LSDBA introduces a £1,073,100 allowance, impacting both lifetime withdrawals and death benefits. This allowance is crucial for estate planning and maximising your pension’s value to beneficiaries.

  3. Overseas Transfer Allowance (OTA): Also set at £1,073,100, the OTA measures the value of pension benefits transferred to qualifying recognised overseas pension schemes (QROPS). As long as the pension benefits are within the allowance, they can be transferred to a QROPS tax-free. Any excess will be taxed at 25%.

There are transitional arrangements for those who have already crystallised some but not all of their pension benefits.

Strategic Considerations

With these changes, strategic financial planning becomes even more critical. As planners we consider several factors:

  • Review of Current Pensions Strategy: It’s advisable to review current pension strategies to ensure they align with the new rules. This might involve adjusting contribution levels or revisiting investment choices.

  • Tax Planning: The interplay between various tax wrappers and the new pension allowances should be carefully managed to optimize tax efficiency.

  • Regular Review and Consultation with Your Financial Planner: Engaging your planner to understand the nuanced implications of these changes on personal financial goals and tax obligations is more important than ever.

Looking Ahead

As we transition into this new framework of pension allowances, an open dialogue with your financial planner is paramount. For many of our clients, the new rules open up further possibilities for enhancing wealth accumulation and crafting a more tailored retirement strategy. This is a pivotal moment in financial planning, offering both challenges and opportunities to secure financial comfort in the later stages of life. We look forward to discussing those opportunities with you.

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Many analysts and observers are expecting the Bank of England to continue hiking up interest rates for some time. So what does this mean for you and your mortgage?

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Make sure you’re ready for unexpected events

Nobody knows what’s just around the corner, and unforeseen events can occur any day at any time. So how can you make sure you’re prepared for an uncertain future?

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Why are landlords leaving the buy-to-let market?

We’re increasingly seeing landlords leaving the market, which in turn is leading to a shortage of rental housing at a time when many people can’t afford to buy a property. So what factors are driving this exodus from the buy-to-let sector?

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Are you getting caught in the inheritance tax threshold?

The current inheritance tax threshold is £325,000, so there’s nothing to pay if the value of your estate falls below this amount. Worryingly, this threshold has remained frozen now for more than a decade – despite soaring house price inflation over this period.

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Should I be wary of 100% mortgages?

Skipton Building Society recently hit the headlines after announcing that it was offering a deposit-free mortgage, aimed at first-time buyers currently living in rented accommodation.

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What are asset classes?

Asset classes are a way of classifying investments into groups. These groups will feature separate individual investments that will behave similarly, but their performance can vary for many reasons.

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Stock listing rules shake-up on the way

Just recently, British technology firm Arm chose to list in the US rather than the UK, which led to many expressing concern over whether UK stock markets remain an attractive proposition to businesses post Brexit.

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How to make your financial goals achievable

If you speak to a financial adviser, it’s important to have a clear idea of what you want to achieve. Do you want to expand your investment portfolio? Get on the property ladder? Maximise your income in retirement? Pass on a generous inheritance to your loved ones?

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June Market Commentary

Economic growth remained subdued at best in many major markets throughout May. As always, let’s take a closer look at the details to find out more about what’s been happening over the last month…

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Teach your children good financial habits

You want to make sure your finances are in order, so you can provide for your family after you’re gone. But another way to help your loved ones is to instill good financial habits into them early on in life, so they’re in a stronger position to achieve their goals in the future.

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7 Common Investment Mistakes to Avoid

Investing is a great way to increase your wealth and work towards your lifestyle and financial objectives. But it’s by no means a smooth process, and many investors can make mistakes that can ultimately be very costly. So what should you avoid?

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Are you confident in making financial decisions?

If you were asked to make big financial decisions, how sure are you that you’d make the right ones. Well, a new study by PwC and YouGov has found that nearly nine in ten people feel confident or very confident in making decisions about their money.

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How has high inflation affected retirees?

All of us have felt the pinch as inflation has soared to its highest level in 40 years. The rising cost of living has affected everybody to some extent. But one group that’s being particularly hard hit is retirees.

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May Market Commentary

High inflation continued to put the brakes on growth in many major economies throughout April. As always, let’s drill down a bit further and take a closer look at what’s been going on across the globe…

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What should you think about before retiring abroad?

Retiring abroad is a common ambition. But moving overseas in later life isn’t quite as simple as just packing your suitcase and jetting off. There are plenty of things you should think about beforehand, so you can be confident you’ll get to enjoy retirement abroad.

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Can I get a state pension if there are gaps in my National Insurance record?

You might have been off work for several years for a range of reasons. Thankfully, that doesn’t preclude you from being eligible for a state pension in later life, as you can always purchase National Insurance credits to fill any gaps in your record for the previous six years.

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High mortgage rates continuing to put pressure on young homeowners

According to the Bank of England, the number of mortgage approvals hit its lowest level since 2009 – excluding Covid lockdowns – during January this year.

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Should I be worried about a new banking crisis?

Six leading central banks are boosting the flow of US dollars to keep credit flowing to households and businesses, which have helped to calm nerves on the financial markets to an extent, there is still an air of volatility at the moment, vividly demonstrated in recent European bank share price movements.

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Tips for finding the right accountant

Accountants can help you understand complex legal and taxation matters, navigate regulatory changes and provide valuable guidance and support as you seek to grow your business. So it’s crucial that you work with the right person.

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What are buy-to-let tenants looking for?

As a buy-to-let investor, you know better than anyone how competitive the marketplace is right now. So what can you do to get ahead of the pack? Well, understanding exactly what tenants want and are searching for can make a big difference.

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April Market Commentary

As ever, we’ll take a look at what’s happened in key markets around the world over the last month, so we can get a clearer picture of what the situation looks like.

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Digital pound could be on the way

Almost everything seems to have gone digital in the last few years – and it looks as if the pound could be next. A consultation on creating a digital pound has just been launched by the Treasury and the Bank of England. Households and businesses would be able to use it for everyday payments in-store, online and to friends and family, and access it through a digital wallet on their smartphone or a smartcard. The proposed digital pound would be issued by the Bank of England and would be interchangeable with cash and bank deposits.

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Can you afford to retire early?

Early retirement – retiring any time before the state pension age of 66 – is the dream for many. The pandemic focused many people’s minds; making them think about what they want out of life – and for many in a position to make big changes, early retirement was the big one. The House of Lords Economic Affairs Committee has recently been looking into what’s driven an increase in economic inactivity over the last three years, and found that the key factor is 50- to 64-year-olds choosing to retire early.

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Confidence Growing Among UK Businesses

The headlines have been full of grim economic news for a while. From talk of imminent recession and staff shortages to higher interest rates and industrial disputes, there’s been plenty of reasons for worry and alarm, not least among business leaders. So it’s interesting to note that, according to the S&P Global CIPS Flash UK composite purchasing managers’ index, many businesses are actually cautiously optimistic about the future.

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Get ready for the end of the tax year

The end of the tax year is fast approaching and time is running out. So in the weeks ahead of the April 5th deadline, what steps should you be taking to make the most of your money and reduce your tax bill?

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Are late payments holding back your business?

Late payments have long been a huge issue for small businesses, as many simply don’t have the financial means to go without money they’re owed for any great stretch of time. As a result, the very survival of some businesses is at stake, with the Federation of Small Businesses (FSB) stating that late payments are behind the closure of 50,000 businesses every year. What’s more, according to a recent FSB survey, the situation is deteriorating, as nearly one in three small businesses believe their payment situation has worsened over the last three months.

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March Market Commentary

Russia’s invasion of Ukraine in February 2022 had a huge impact on the global economy, pushing up commodity prices, inflation and living costs around the world. Last month saw the first anniversary of the invasion, and amid the renewed displays of solidarity from leaders in the UK, the US and the European Union, was the uncomfortable reminder that this could be a prolonged conflict. Policymakers are therefore having to balance their continued support for Ukraine with minimising the economic fallout, and the effects this will have on households and businesses.

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February Market Commentary

Savers and investors will not shed many tears for the end of 2022. A year that was beset by inflation and rising interest rates meant only three of the major stock markets we report on made gains in the year.

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Why are house prices falling?

Average house prices have been falling steadily for the last few months now. In fact, the latest figures from Halifax show that prices fell by 1.5 per cent in December 2022, taking the average property value to £281,272. What’s more, that was the fourth monthly decline in succession, which is staggering when you think that even a global pandemic failed to stop house prices heading upwards.

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Do you feel in control of your finances?

Money worries can have a devastating impact on a person’s life, causing untold stress and heartache day after day. So it’s really important that you’re not left feeling as if your finances are like a runaway juggernaut: out of control.

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Take a long-term view of your investments

Investments go up as well as down. It’s one of the most basic principles of investing that we’re told early on in the process. So why do so many of us panic when conditions in the market are less than ideal?

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Seats at the Billionaires’ Table

According to Forbes’ ‘Billionaires’ List’ for 2022, the richest person in the world is currently Tesla boss, Elon Musk. Along with Tesla, Musk has co-founded Space X and a tunnelling start-up – the aptly named Boring Company – and is reportedly worth $219bn (£184bn).

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Are you tempted to go back to work after retiring?

As the government looks to get the economy firing on all cylinders, Chancellor Jeremy Hunt has been looking at fixing what he described recently as the UK’s “productivity puzzle”.

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What is the state pension triple lock?

The Chancellor’s decision to protect the state pension triple lock was one of the most headline-grabbing aspects of the recent Budget. But what exactly is the triple lock and what does it mean?

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Could we see a Retail Recovery?

As we all know, interest rates have been steadily rising this year. Higher interest rates equal higher mortgage rates, which means less money for householders to spend. Then came the Autumn Statement. Tax thresholds frozen equals more to pay in taxes equals less to spend in the shops.

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Set financial new year’s resolutions for 2023

The new year is almost upon us and we’ll all be setting our resolutions for the next 12 months. Perhaps you want to improve your diet, quit smoking, learn a new skill or hobby, or pick up an old hobby that you’ve let slide over the years. But have you thought about improving your financial habits too?

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What is open banking?

It’s a term we’ve heard a lot recently, so let’s take a close look at what open banking actually is, and how many people know about it. Open banking means allowing third-party financial services providers, such as budgeting apps, to access a person’s banking information, like their payment history and previous transactions.

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How did Germany end its reliance on Russian energy?

Many readers will remember the disaster at Japan’s Fukushima nuclear plant in March 2011. This was a trigger for Germany to significantly scale back its commitment to nuclear power, with eight reactors permanently shut down in August of that year. At the time, it didn’t seem to be a problem: the gas and oil were flowing from Russia and powering the German economy – widely accepted as the engine which drove the rest of Europe.

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January Market Commentary

As 2022 drew to a close, there was a mixed picture worldwide as major economies sought to respond to soaring energy prices, rising living costs and the continuing impact of Russia’s invasion of Ukraine. In our first round-up of the year, we look at where we left off in 2022 all across the world…

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Can I get tax relief on pension contributions?

If you’re paying into a pension scheme, you can get tax relief on your contributions, with money that would otherwise be paid in tax going into your pension pot instead.

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Why it’s good to talk about money this Christmas

With inflation at its highest level in more than 40 years, and energy and grocery bills continuing to head upwards, many are feeling the pinch – but perhaps even more so now that Christmas is fast approaching. According to a recent poll by PayPal, 58 per cent of Brits are anxious about the cost of living crisis, and 44 per cent are worried about financial pressure over the festive period.

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Could professional financial advice help you through the cost of living crisis?

With soaring inflation and rising interest rates, many people are feeling justifiably anxious about making ends meet. That’s partly because the key triggers of the cost of living crisis are beyond our control – so it’s easy to start feeling completely helpless. But there is something you can do – speaking to a regulated, professional financial adviser.

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Are you saving enough money?

How much money do you have in your savings account? How long would your head stay above water if you lost your main source of income? These are important questions, particularly as the cost of living crisis bites, but several new studies have revealed that many people have a worryingly small amount of money saved up.

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December Market Commentary

War? Soaring energy and food prices? Covid surging in China and people taking to the streets in protest? Worries about a prolonged recession here in the UK? In November, there was plenty for world stock markets to worry about – but, as we will see below, the markets largely shrugged aside the concerns, with some making significant gains. The problems that we have written about for virtually all of this year didn’t go away – but they didn’t get any worse either – and world stock markets seemed to breathe a collective sigh of relief.

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The war in Ukraine: What happens next?

It is now more than eight months since the Russian tanks rolled across the Ukraine border in what Vladimir Putin continues to describe as a ‘special military operation’. Putin clearly expected the invasion to be over quickly – as, you suspect, most people in the West did. But eight months on, here we are. Ukraine is fighting back, recapturing territory that has been occupied and most experts now think the war will last well into next year. So what is likely to happen? And what does it mean for us here in the West?

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What’s Going to Happen to House Prices in 2023?

The pandemic failed to halt the surge in house prices, and so far, soaring inflation hasn’t done so either. In fact, figures from Rightmove indicate there was a 0.9 per cent increase in average property values in October 2022, taking prices up to a record £371,158. But nevertheless, there are genuine fears among some that a big drop in the market …

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How are interest rates and inflation linked?

The Bank of England’s aim is for the country to have low and stable inflation – and it works to a target of two per cent. Changing interest rates are the Bank of England’s mechanism for achieving its inflation target, and in the current climate of high inflation, it believes raising rates is the right approach. Otherwise, it maintains, the problem …

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Is Equity Release a Good Idea?

Early last month, City AM had a dramatic headline: ‘Cash-strapped homeowners turn their properties into personal cash machines.’ They reported that equity release was ‘booming’, with homeowners releasing a total of £4.8bn from their homes in 2021. Ten years previously, the amount released was just £790m with only two years out of the ten – …

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November Market Commentary

Introduction Where did we leave the soap opera that is British politics? At the end of September, Liz Truss was the Prime Minister, and Kwasi Kwarteng was her Chancellor. As we reported last month, Kwarteng presented his ‘fiscal statement’ on Friday 23rd September. Three weeks later, he was gone and Liz Truss had to endure the most public of humiliations …

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What are gilts?

The recent Mini Budget, a £45 billion tax cutting package, paid for by increased public borrowing, led to panic among many investors and a run on Britain’s pension funds. As a result, the Bank of England was forced to step in to stop a collapse by pledging to buy around £65 billion of long-dated gilts. But what exactly are gilts and why do they …

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What is ‘Trickle-down’ economics?

All our clients reading this will be aware of the fallout from new Chancellor Kwasi Kwarteng’s recent ‘fiscal event,’ delivered on the morning of September 23rd. The 45p rate of tax was abolished, the planned increase in Corporation Tax quickly followed and National Insurance hikes were reversed. The right-wing think tanks loved it: Nigel Farage …

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Are we seeing a new boom in ‘Buy Now, Pay Later?’

Many of our older clients will remember Access and Barclaycard, the first credit cards in the UK. Access was launched by Lloyds, NatWest and Midland Bank (now HSBC) in October 1972. It was marketed as ‘your flexible friend’ – and had another advertising slogan as well: Access ‘takes the waiting out of wanting.’ Credit, tick, the never-never…

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Get control of your old pensions

Very few of us have a job for life these days, with many of us moving through numerous roles and businesses as our careers progress. That means you’ll probably have several workplace pensions throughout your working life, and as time passes, it can be easy to lose track of them. You might have moved house since leaving a previous job, and your pension …

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How does the falling pound affect me?

The pound went into freefall after Chancellor Kwasi Kwarteng’s Mini Budge, with news of a raft of tax cuts at a time of soaring inflation and rising interest rates sending chills through the markets. For many, talk of financial markets, exchange rates and the value of the currency can seem very remote and abstract. But these things have a big impact …

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October Market Commentary

Introduction Speaking to journalists at a lobby briefing in 1964 – when the sterling crisis was raging – Prime Minister Harold Wilson famously said “a week is a long time in politics”. What, then, is a month? Especially a month like September 2022 when enough happened to fill a year’s worth of Bulletins. In the UK, the beginning of the month …

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The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK. Welby is a trading name of Welby Associates Wealth Management Ltd Company Registered Number NI630504 who is authorised and regulated by the Financial Conduct Authority, FCA register number 697372. The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk

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