Clients could be better off paying the lifetime allowance charge where the alternative remuneration offered by the employer does not offset the loss of future benefits, according to Ian Price, divisional director of pensions and consultancy at St James’s Place Wealth Management.
If you are a member of a defined contribution, money purchase scheme, Mr Price says rather than giving up the benefit of the employer’s contributions you may instead prefer contributions to be continued after 5 April 2014.
In this case, he says an individual could reduce the chances of breaching the lifetime allowance by choosing a more conservative investment strategy.
He adds if a client has a pension pot of £1.25m and has hit their lifetime allowancebut their partner has not fully funded their pension, then they might want to consider funding their partner’s pension to the same amount.
Once both partners have funded their pensions, then Mr Price says it is a matter of sitting down and working out what strategy they should adopt in order to create the income you need.
When your uncrystallised benefits exceed your remaining unused lifetime allowance, Mr Price says it may be considered more appropriate to crystallise the remaining benefits to meet the immediate lifetime allowance charge rather than paying an unknown liability in the future when the next ‘benefit crystallisation event’ occurs.
If pension contributions cease then Mike Morrison, head of platform marketing of AJ Bell, says alternative forms of saving for retirement might become more useful, for example Isas.
Mr Price says: “It goes without saying you should consider funding Isas up to the maximum limit each year and then consider other investment propositions such as VCTs and EIS.
“This again is going to be very much down to your individual attitude to, and appetite for, risk.”
Adrian Walker, retirement planning lead at Skandia, says use of venture capital trusts or enterprise investment schemes can provide tax relief on the investments but perhaps are riskier in terms of outcomes.
Mr Walker says: “Investment into property could generate rental income yield as well as potential for capital growth.”
Advisers should also consider investments outside registered pension schemes do not have any effect on the protections and do not count towards the lifetime allowance, John Lawson, head of policy at Aviva, points out.
