Independent Financial Advisors - IFA Bolton, UK

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Limits on the size of your pension
Limits on the Size of your Pension

There is a limit on the amount of money built up within your pension. In the tax year 2009/2010 this amount is £1.75 million, with the threshold expected to rise over the years to allow for the impact of inflation:

2010/2011 - £1.80 million

The lifetime allowance will be frozen at their 2010/11 levels until the end of tax year 2015/16.

This is also the maximum amount that can be paid out as a tax free lump sum to your beneficiaries in the event of your death, giving much greater flexibility to provide death benefits via pensions after A-Day.

Introducing one lifetime limit for pension fund size effectively bins the sometimes complicated calculations savers could be forced to work through under the old pension rules.

A further innovation under the new rules is that the value above the lifetime limit will be subject to a new tax charge known as the lifetime allowance charge, or recovery tax, which will be charged at up to 55 per cent.

This measure is aimed at curtailing the amount of tax relief individuals can get from pensions.

A pension fund of more than £1.75 million might sound like the preserve of the very rich, but it is likely that more individuals than they realise will be in danger of breaching the lifetime limit and potentially facing a 55 per cent tax hit.

This is because the lifetime limit relates to your entire pensions savings, including any private pensions, occupational pensions, free-standing additional voluntary contributions and pension term assurance, so many people who think they are well below the lifetime limit might have more than they realise when they take into account the full picture.

This means it will be essential for certain pension savers likely to be on the brink of the lifetime limit to keep on top of the size of their total pension fund as they build it up.

Dealing with the paperwork and calculations may seem daunting, but one of our advisers will be able to project realistically the value of retirement savings into the future.
 
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