PENSION REFORM 2014/15
Synopsis: Thoughts on the reduction of the LTA to £1m.
After the Budget, MGM Advantage published a Press Release setting out their view of the implications of the LTA reduction.
They included a table showing where people should potentially consider stopping saving into a pension, as they may be in danger of breaching the £1m Lifetime Allowance.
They based this on the current value of the benefits, and the following assumptions:
• 6% investment growth a year after charges, and
• a planned retirement age of 65
• no further pension contributions made.
• LTA increases with inflation at 2.5% from 2018
Pension funding, they suggest should stop at the following ages with the indicated fund value:
• Age 40 £423,000
• Age 45 £502,000
• Age 50 £596,000
• Age 55 £708,000
• Age 60 £841,000
Alternate Planning Strategy
MGM Advantages suggested strategy has its merits, but what are some of the alternative strategies that could be considered.
Understandably, MGM Advantage being an annuity office assumes that benefits are secured by means of a lifetime annuity. However, if, rather than securing a lifetime annuity, the individual decided to utilise a scheme pension annuity, the amount assessed against the LTA wouldn’t be the £750,000 assumed purchase price of the annuity after taking the PCLS, but 20 X the initial income. So, if the PCLS has used up £250,000 of the LTA, that leaves £750,000 LTA to set against the initial level of scheme pension income
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