Honey I shrunk the Annual Allowance again!

25th March 2015

The Chancellor’s recent announcement in the Budget is that the Lifetime Allowance (LTA) is going to reduce to £1m from 6th April 2016. This marks the eighth change in the LTA since its introduction in 2006.

This statistic does not even take into account the personalised LTA afforded by certain forms of protection, since 2006, such as Primary or Individual Protection.

When first introduced, the legislation allowed for a gradual increase from £1.5m to £1.8m, with the prospect of reviewing every five years as the intention was that it would continue to increase. In fact the opposite has been true, with continual reductions to the LTA.

Unfortunately the latest announcement will affect almost all doctors at some stage in their career, posing many complicated financial planning issues, both now and in the future.

For example, imagine the scenario of a 46 year old doctor who has accrued an NHS Pension of £44,000 (giving a current LTA of £1,012,000) will they join the new 2015 Care Scheme, for one year’s service, before applying for new Fixed Protection fixing LTA at £1.25 million?

Or would they be better making a one off personal contribution utilising unused tax relief over the last 3 years into a personal arrangement , which can be drawn down in a flexible way from age 60, without penalty?

Can doctors afford not to use Investment ISAs knowing that at some stage they may be coming out of the NHS Pension due to a reducing LTA, and thus ensuring retirement remains a financial possibility for them in their early 60’s?

Retirement planning for doctors was already very complex but it has just become considerably more complicated. We strongly believe there has never been a more important time to seek the advice of a specialist Independent Financial Adviser who understands not only the changes to Pension Legislation but also how the changes to the NHS Pension are intrinsically linked to a doctor’s career and ultimately a comfortable and secure retirement.

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