24 January 2014
The Pensions Lifetime Allowance countdown clock is ticking

Standard Life is warning that the 360,000* people potentially affected by the pensions lifetime allowance (LTA) will have to act fast or miss out on the opportunity to protect themselves from a potentially unnecessary tax charge. If they haven't tracked down all the information they need by the end of February, they run a real risk of missing the decision deadline.

The LTA will drop to £1.25m on 6 April 2014, so savers now have just over 80 days to make a decision. It.applies to an individual's total pension worth, so they will have to act quickly to gather details of current values and growth projections for any private pensions, including SIPPs, as well as any workplace money purchase or defined benefit schemes.

Calculations by Standard Life show that due to investment growth, an individual 10 years from retirement with accumulative pension savings of around £700,000** or a final salary pension income of around £60,000 could be at risk of breaching the £1.25m LTA.

Pension savers who don't check to see if they will be affected and who exceed the LTA will expose up to £250,000 of their pension savings to a 55% tax charge - leading to an unexpected tax bill of up to £137,500.

Commenting, Alistair Hardie, head of customer consolidation at Standard Life, said:

"Pension savers who might be affected by the drop in LTA will need to gather current values from all of their pension providers - and that can take time. If they don't have online access to that information and have many different plans, it may take even longer. They might have to find all the paperwork, request an information pack from each pension scheme provider to work out their cumulative total and then calculate their investment growth and may need advice to see if they are at risk of breaching the LTA.

"It might take somebody weeks, if not months, to gather all the documentation required to work out their total pension value, particularly if they have many different pots. Pensions savers who might be affected need to make sure they don't miss any of their pensions out and need to start things moving now."

Research for the DWP shows that an individual will work for an average 11 employers*** during their lifetime, which means some people are likely to have accumulated many different pensions over the course of their careers, making it more difficult to get a clear view of their overall pension fund value.

Consolidating these pensions could make it simpler, providing greater clarity and making it easier to judge if they might be impacted by the LTA changes. There are other things to consider when thinking about consolidating so it may not always be the best option.

The Government's long term plan is for most pension pots to be consolidated as people move from job to job, but it may be some time before this is implemented and it is not certain that it will include pension pots accumulated to date.

Hardie adds:

"We want to help people avoid sleepwalking into an unnecessary tax charge. If people think they might be impacted, they should seek advice soon, well ahead of the April deadline to find out what the best next steps for them could be. Options could be individual or fixed protection or to continue to save and take a tax charge. We would recommend people aim for the end of February to have collated all their necessary details and to have arranged a meeting with their financial adviser. Leaving it any later could result in them unfortunately slipping past the 6th April deadline. And when you take into consideration the tax year end is one of the busiest times for advisers, getting started on this early is a must."

Research by YouGov, on behalf of Standard Life, shows less than a fifth (19%) of people know what the LTA is and only 31% of people earning more than £50,000 - the salary earners most likely to be impacted by the change - are aware of it.

Standard Life has published a report examining how the LTA will impact people (PDF, 333KB). It outlines the choices savers have and the important decisions they need to make well ahead of the end of this tax year. It also details how people might accidently slide into a tax charge due to potential investment growth; multiple pension pots; or being in defined benefit schemes with a period of long service.

More information and detail to help people who think they might be affected, which includes calculators and tools can be found here www.standardlife.co.uk/ticktock.

*www.hmrc.gov.uk/budget2013/tiin-1046.pdf (PDF, 54KB)

**Someone 10 years from retirement with multiple pension pots worth around £700,000 could exceed their allowance if their pot grows at 7% a year, which includes a 1% charge - even if they stop paying into it now.

*** www.gov.uk/government/uploads/system/uploads/attachment_data/file/220405/small-pension-pots-consultation.pdf (PDF,795KB)

ENDS

For further information, please contact:

Matthew Pittam
Direct Dial: 0131 245 4961
Mobile: 07515 298 642
Email: matthew_pittam@standardlife.com

Notes to Editors

All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2018 adults. Fieldwork was undertaken between 9th - 12th August 2013. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

LTA options

There are two new protection options for 2014, allowing pension savers to lock into the current higher LTA of £1.5 million beyond 5 April 2014. These are 'Fixed Protection 2014' and 'Individual Protection'.

  • Fixed Protection allows pension savers who feel their pension pot is below the limit but could be affected in the coming years to keep a £1.5m LTA beyond 2014. By taking fixed protection the person will be unable to continue to contribute to a DC scheme and in almost all circumstances DB schemes.
  • Individual Protection is available only to people with pension savings worth more than £1.25m on 5 April 2014. Crucially, this protection comes without the trade-off needed for fixed protection and individuals can keep funding their pension after April 2014 if they want.

There is a third choice, which is to continue to fund your pension and take the tax charge:

  • No protection might mean paying more tax but it could still give the best result depending on personal circumstances - particularly if it means continuing to build-up additional years of final salary benefits including employer contributions.

Who might be affected by LTA?

About Standard Life

  • Established in 1825, Standard Life is a leading long term savings and investment company, with around six million customers worldwide. It is headquartered in Edinburgh and employs 8,500 people internationally.
  • Standard Life offers a range of individual and group pensions, SIPPs, ISAs, annuities, life assurance, offshore bonds, investment management, wealth management, tax planning and estate management services. By understanding and offering innovative products to meet its customers' needs, Standard Life helps people with their financial planning, so they can feel more confident about the future.
  • The Standard Life group includes savings and investments businesses, which operate across the UK, Canada, Europe, Asia and Middle East; workplace pensions and benefits businesses in the UK and Canada; Standard Life Investments, a global investment manager, which manages £179bn globally; and its Chinese and Indian Joint Venture businesses. At the end of September 2013 the Group had total assets under administration of over £237bn.
  • Standard Life plc is listed on the London Stock Exchange and has approximately 1.5 million individual shareholders in over 50 countries around the world.
  • Standard Life plc is also listed in the Dow Jones Sustainability Indexes (DJSI World) in recognition of its performance as one of the world's leading sustainability-driven listed companies.
  • You can follow Standard Life press office (@sl_press) on www.twitter.com/sl_press


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