Those saving for their pension could be at risk of a 55 per cent tax bill, an expert has warned. Changes made to the Pensions Lifetime Allowance, (LTA), have put extra restrictions on how much a person can save while benefiting from tax relief, as reported by the Leicester Mercury.
And if you exceed the LTA, a hefty 55 per cent tax bill could be on the way, undoing all of the benefits of making pensions contributions throughout your life. As it stands, the LTA is at £1,073,100, however, the allowance was frozen by then-Chancellor Rishi Sunak, with the freeze extended until 2028 by Jeremy Hunt.
Romi Savova, CEO at PensionBee, warned that savers are being "punished" for taking a strong approach to their pension. She told the Daily Express: "The current Lifetime Allowance limit punishes those who have saved diligently throughout their working life and contradicts the Government’s message that everyone should be saving for retirement.
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"The freeze, coupled with spiralling inflation means the amount one can save into their pension without suffering penalties is plummeting. Continuing to leave the Lifetime Allowance at its current threshold, presents a real threat of long-term damage to the retirement livelihoods of many everyday savers."
Ian Pickford, partner at Mazars, added that "thousands of people" have been "dragged" into paying additional tax in the past decade. He said: "With the Lifetime Allowance threshold on ice, this upward trend won’t slow down, hitting both Defined Benefit and Defined Contribution pension savers, especially those with generous pension perks. It’s closer than many people think.
"Freezing the cap is effectively a punishment on saving into a pension, the very thing people are encouraged to do and the reality is that a £1million pension pot won’t go as far as many believe. Outgoings, like care costs or supporting children or grandchildren, have the potential to swallow up a large chunk of this, even just a short time into later life."
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