Case studies


by | May 20, 2020 | Case studies

Successive governments have meddled with the tax reliefs for pension savings.  In 2006 fundamental changes were made to limit the amount of tax relief that could be given to a person in their lifetime.  This Lifetime Allowance (or LTA) was initially set at £1.5m.  It now stands at £1.8m but will reduce on 6th April 2012 to £1.5m again.

Adam, like many of our clients, needs to keep an eye on the LTA.  If his pension savings exceed it, he may suffer an unpleasant tax rate of 55% when he draws his pension savings.  His position though is complicated by having amassed different types of pension savings over his career.

Several years ago Adam was in a Defined Benefit (DB) scheme with a large financial services company.  When Adam was promoted the company offered him a top-up arrangement to his DB pension; promising to give him an extra payments when he retired.

Adam then for many years paid in to Defined Contribution (DC) plans and managed to create a pot of DC pension savings of about £1m during that time.

As Adam reached the time when he would like to retire he needed our support to consider:

  • How much could he reasonably put away in pension savings and get higher rate tax relief in the last couple of years of his career;
  • What impact would the fall in the LTA from £1.8m to £1.5m have on Adam’s pension savings; and
  • How were his old DB and top-up benefits valued and added to DC savings for the purposes of the LTA;

In our work with Adam we also had to advise him on the implications of his former employer deciding to fund his old top-up promise.

Our advice to Adam revolved around:

  • Using new rules for carrying forward pension relief over three years to pay a large one-off pension contribution;
  • Persuading Adam’s former employer to fund his old promise after the end of his current Pension Input Period so as to avoid a tax charge on Adam; then
  • Taking a once-off opportunity for Adam to fix his LTA at £1.8m before 6th April 2012

We were able to achieve a very good tax outcome, whilst also allowing Adam to accept his former employers desire to fund his old top-up pension, in turn giving him more financial security.

See how we can help

We pride ourselves in delivering the highest quality service to all of our clients, and in constantly striving to improve the range and nature of that service. If you have a question that we can help you with, please feel free to get in touch. 

Sign up to get our newsletter

We would love to be able to provide you with some insight each month on tax issues as and when they arise. Please therefore feel free to sign up to our newsletter.