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What Does a Pension to the Lifetime Allowance Limit Provide in Retirement?

The Lifetime Pension Allowance is the maximum amount of money you can hold in all of your pension schemes (including private and NHS pensions but excluding your State Pension) before your funds are subject to additional taxes. The current lifetime allowance is £1.03m. Starting this year, the allowance will be indexed alongside the Consumer Price Index, so will increase with inflation.

This does not constitute advice and advice should be sought in all instances before acting on it.

The importance of having a healthy pension account has recently been highlighted with the introduction of the auto enrolment programme which requires employers to automatically enrol all employees in a workplace pension scheme, and contribute to the pension.

We also recently shared some of the benefits of having a pension pot above the Lifetime Pension allowance. But what exactly will a pension that has reached the lifetime allowance net you during retirement?

Potential pay out

Let’s take a look at the possible monthly pay out you could receive. Say you are:

  • a healthy non-smoker
  • have reached retirement at 65
  • either have an amount close to the lifetime allowance in your pension account or you’ve saved the full amount.

Rather than taking the option for a £250,000 tax-free lump sum, you can put your pension funds to good use and choose an inflation-proof income.

Based on current pension annuity rates, your gross monthly takeaway would be £2,500. After taxes, and assuming the pension distribution is your only income, you would net approximately £2,200.

If you add in a two thirds spouse’s pension, you lose another £400 – or about £320 after tax.

The main feature of these annuity payments is that they are guaranteed for the rest of your life. A full year’s worth of payments will provide you £30,000, or 3% of your pension account.

*It’s important to note that your pay out is connected to the Retail Price Index, which tends to be based on higher inflation figures.

Supplemental Income

Many dental and medical professionals have income-based lifestyles they’ve cultivated over the years and may find retirement, and the subsequent reduction in income, a shock.

It’s prudent to scale back any extravagances and prioritise during retirement. But if you haven’t planned for additional income beyond pension pay outs, you may have to start sacrificing more than you’d like.

The key to a stress-free retirement is to plan ahead so you can start saving into all of your accounts as early as possible. But there are a few options available to help you ensure you enjoy the retirement you’ve worked hard for.

You should review the various savings and investments options and decide on which pension account you would benefit from the most. Amongst the pension options available to you are

  • personal pensions
  • company pensions
  • NHS pension
  • state pension
  • annuities
  • self-invested pension plans.

Firstly, you should work out exactly how much you will be receiving from your state pension, the foundation of your retirement income.

This can easily be done on the government’s website. And if you have lost track of one of your company pensions, the government also has a tool to locate them.

While you’re taking stock of your pension funds, review the rest of your investment portfolio to calculate the value of the assets you hold. Meeting with a financial advisor is also a crucial step in planning for your retirement.

At Dental & Medical Financial Services, we are experts in helping doctors and dentists prepare for their retirement.

We can assist you with reviewing your current state of affairs and advise on what you will need to keep your desired lifestyle during retirement.

Want to have a financially healthy retirement? 
Investments | Financial Planning | Retirement | Save Tax | Protection |

Dental & Medical Financial Services have been helping doctors and dentists with  successful retirement planning, whilst saving tax, for over 25 years.
Call Darren to discuss your options.

Tel: 01403 780 770


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