For an illustration of just how powerful compound interest can be, consider how much a pension can grow with just 5% net growth a year:
- £200,000 fund from age 30 = £1,100,000 at age 65
- £300,000 from age 40 = £1,015,000 at age 65
- £500,000 from age 50 = £1,039,000 at age 65
Increasing numbers of retirement savers are being caught out by LTA. The Lifetime Allowance used to be £1.8m; for most people In 2019/20 it is £1,055,000 and 2016-17 saw a 2,100% increase in the government’s LTA tax take, when compared to 2006-07, with any savings above the LTA threshold subject to 55% at the point of cashing out.*
However, it is worth remembering that paying the LTA tax is not always a bad thing. In some cases, retirement savers may only attract the tax because they have succeeded in saving more for their retirement than they had originally planned. The fact is, if you find yourself surprised by the LTA, you have done well: if you had put the money into a savings account or stuffed it under a mattress, you would not have a sum that exceeds the threshold. But luckily, if you keep track of your pension funds, there are ways to plan for the LTA.
Planning for the Lifetime Allowance
Just as the best way to build for a wealthy retirement is to plan and save early, the best way to minimise the impact of the LTA on your pension fund is to take action at the earliest possible opportunity.
Keep a close eye on your possible exposure to the LTA and if you find you are edging close to the limit, you can consider ending your contributions, reducing them or channelling your money into alternative and more tax-efficient investments. For some, early retirement may a be a reasonable way to avoid LTA charges. It is advisable to sit down with your expat financial adviser to consider crystallisation events and the possibility of overseas pension transfers – for example into a QROPS or SIPP.
Expat Pension Planning with Blacktower FM
Blacktower Financial Management’s expat financial advisers can help with all aspects of cross-border wealth management, including pension planning for the LTA, overseas transfers and inheritance planning.
Contact us today for more information about how we may be able to help you make the most of your retirement accounts and cross-border financial situation.
Disclaimer: Blacktower Financial Management is not a tax adviser and independent tax advice should be sought. The above does not constitute advice and Blacktower makes no recommendation as to the suitability of any products or transactions mentioned..