Pension Freedom  

What to watch for when the LTA finally rises

There is no harm in applying for LTA protection because it will just fall away when the standard allowance exceeds the protected LTA. 

Looking at Chart 1, it is clear that if the client were to have £1.25m protected through individual protection 2016 (IP16) or fixed protection 2016 (FP16) then it will still be many years before their personal LTA is exceeded, with this occurring in 2024-25, assuming CPI inflation remains at 3 per cent, or in 2026-27 if it were to drop to 2.5 per cent. 

However, should the individual only have IP16 at a lower level, which could be anything above the current £1m LTA, it would be much sooner. 

In some cases, IP16 will become invalid this coming tax year, so there would have been no point applying if nothing has yet been crystallised.

Other LTA protections

It is also clear from Chart 1 that it will be many years before the increase in the LTA has an impact on FP14, and even longer before the allowance reaches the dizzy heights of FP12, or more importantly the highest LTA we have seen to date. 

By my estimates, at 3 per cent CPI inflation this would be another 19 years, or 23 years if we are looking at CPI inflation of 2.5 per cent. 

I live in hope that we won’t see any significant changes in the plan to apply regular increases in the LTA between now and then – unless it is an ad hoc rise, which would be most welcome by the pensions industry as a whole. 

There are still so many individuals that have been hit by the reduction solely due to great market performance. 

It is just unfair that they are being penalised for investing well.

Claire Trott is head of pensions strategy at Technical Connection