This question was posed to me recently via an online forum. Here is my answer.
If you don’t need to access the additional pensions they can stay invested and continue to grow. Under current rules pensions are outside of your estate for IHT purposes so can form part of an estate planning strategy if that is important to you.
If you die before 75 your beneficiaries can receive the remaining pensions as a lump sum free of any tax. Or, they can keep the pensions invested for their retirement. If you die after age 75 any pension received as a lump sum is taxed as income. The rate is based upon their income tax in the year of receipt.
If you access them, because you have used up your Lifetime Allowance you will pay the LTA charge each time you access (‘crystalise’) any additional pension in whole or in part. The charge will be 55% of the excess if you take it as a lump sum or 25% if you take it as an income. Any pension that you take will be added on to income in that year and charged at your marginal rate after the LTA charge (i.e an additional 20%, 40% or 45%).
If you don’t access them they will be tested against the LTA when you reach 75 and/or death (at whatever the level is at that time) so it is likely that there will be an LTA charge to pay at some point. That is assuming the allowance doesn’t increase significantly in the future, which is unlikely.
The content of this post does not constitute advice. Neligan Financial is regulated and authorised by the Financial Conduct Authority.