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Pension traps and opportunities
Key points
- Pension withdrawals can reduce the annual allowance for further contributions.
- If pension benefits exceed the lifetime allowance then additional tax liabilities can arise on a benefit crystallisation event.
- The annual allowance may be reduced for those with ‘threshold incomes’ of £110 000 or more.
- Pension consolidation has advantages but there may also be downsides if valuable benefits offered by older schemes are lost.
- Withdrawals from pension schemes may be treated as a permanent income increase and use of the emergency tax code can result in short term excessive tax deduction.
- Pension death benefits for those aged under 75 are tax free and if taken as income drawdown could be used to benefit a subsequent generation as gifts out of income.
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