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Breaching the lifetime allowance, in the fog, up a big Welsh mountain!

As a chap of certain age, I lean towards leisure activities like walking up hills and mountains. I enjoy drinking proper beer from a cask, and watching pretty much any sport featuring England or GB (mostly rugby, but also cricket and even ‘chavball’). I also love a pleasantly spicy curry with friends (but never ever again a phall, as I’m no longer a student).

So I was in my element, as 11 chaps gathered in Wales to climb a challenging peak, watch the ‘Super Saturday’ climax of the Six Nations, drink cask ale and have a curry. This was, of course, with the aid of some planning by our leader (every group has one and ours has been the leader since the age of four when we met at infant school). Surely nothing could have blighted this being a most excellent weekend? Well, apart from the following:

  1. It was so foggy on the slope that our leader nearly led us over a rather sharp drop. Luckily, we bumped into some kind and knowledgeable people who pointed us in the right direction at a key moment in the final ascent.
  2. Having cheered on the Welsh in the hotel bar (feverishly defending that final minute against France that actually lasted 15 minutes), the locals then brazenly cheered on the Irish against England. How very rude!
  3. During the mountain ascent, a good pal and I chatted about pensions. One of the great things about these walks is that over a six-hour period, there is no doubt you will fully catch up with everyone. As a group, we are all typically male in our lack of contact; text and social media silence makes sense – chatting is much more fun and meaningful! During our chat, my buddy mentioned that he has over 30 years’ service at a big company, in a final salary scheme that accrues 1/54th of his final salary for every year served. After doing some basic rudimentary maths in his head, he suddenly said ‘bloody hell – I think I’ve breached the lifetime allowance!’

Is this a problem and how typical is it?

Well, having pension benefits valued in excess of £1million is certainly a nice problem to have. It hugely exceeds the average defined contribution (DC) pension pot held in the UK. But there is also a personal taxation implication that mustn’t be ignored.

So what should he be doing now?

  1. Certainly checking that his mental maths is correct by getting a proper assessment.
  2. Possibly ceasing future membership if his maths proves to be right.
  3. Definitely engaging with his employer about a cash alternative to their normal pension contributions, if he does cease to be a member.
  4. Possibly starting to plan early retirement via a self-invested personal pension (SIPP), as he is over 55.

The real question here, is whether there is an employer education and engagement obligation in circumstances like this? My friend claims that his employer has never mentioned the possibility that he may breach the lifetime allowance. This may or may not be true. We know that not all engagement efforts work and not every employee reads all their pension communications (or any in many cases). But should it even be the employer’s problem?

My own view is simple – and unsurprising, given my chosen career. I believe that employers need to do more. These personal taxation challenges are becoming more and more frequent. Having your employees feeling well-educated and cared for financially in the workplace can only be a good thing. I am sure we can collectively lift the fog around this subject if we engage well and communicate more effectively.

 

This article was first published with REBA on 02 May 2017.

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