Advisers urged to review clients' pensions following LTA freeze

Pension professionals need to consider the pension Lifetime Allowance's (LTA) potential impact for any client who has a pension pot valued greater than £500,000, according to Quilter.

The firm stated that “more people than ever” will feel the impact of the LTA after it has dropped “dramatically” over the past 10 years before being frozen at £1.073m in Chancellor Rishi Sunak’s Spring Budget.

Assuming that the LTA remains frozen until 2025/26 before increasing alongside Consumer Price Index inflation and that savings grow by 5 per cent annually, Quilter pointed out that, for a pension to hit the LTA in five years its value would need to be £840,802 in 2021.

For a pension to hit the LTA in 10 years it would need to stand at just £727,358, while it would need to total £544,323 to hit it in 20 years and £407,348 to reach the limit in 30 years.

Meanwhile, if the LTA remains frozen beyond 2025/26, Quilter pointed out that a pot with a current value of £248,291 would hit the limit in 30 years.

Quilter retirement planning expert, Ian Browne, said: “While a £1m in your pension pot sounds like a very large pot of money to many clients, advisers know that thanks to investment and compound interest that number can be easier to hit than people may think.

“Our calculations show that someone with a £500k or £600k pension pot and are 15 years from retirement will be forced to hand over some of their hard-earned cash to the taxman.

"This is assuming 5 per cent net investment growth and doesn’t take into account any personal or employer contributions which will substantially speed up growth.

“Reviewing clients' pension funds in light of the Chancellor’s decision to freeze the LTA can make a real difference to a client’s financial plan.”

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