Unintended consequences’ of pension changes
Employers and employees need to be made aware of the full consequences of tapering and lifetime allowance changes, warns Darren Laverty, Partner at Secondsight.
From 6 April 2016, the annual allowance will be tapered from £40,000 for those with earnings of £150,000 or more down to £10,000 for those with income of £210,000 or more.
Another major change is the reduction of the lifetime allowance from £1.25m to £1m. After April 2016, anyone who breaks through the £1m threshold may be liable to 55% tax on any amount over the limit if the excess is taken as a lump sum.
An unintended consequence is that most ‘death in service’ benefits paid out will count toward the £1m – a factor which could leave a bereaved family with less than half of any expected pay out, once the tax is taken.
So what should companies and individuals do to mitigate these risks and protect themselves?