A reduction in the lifetime allowance (LTA) for pension savings could cost savers billions in unexpected tax charges according to research from Standard Life.
The LTA – the maximum amount an individual can accrue in pension savings in their lifetime before triggering a tax charge – falls from £1.5 million to £1.25 million in April 2014.
HMRC expects 30,000 savers to be immediately affected by the change but says that 360,000 will be hit in the long term. Savers who exceed the new limit immediately could be liable for a 55 per cent charge on up to £250,000 worth of savings – a £137,500 tax bill.
Research conducted by YouGov has found:
- The change could cost savers £49.5 billion in tax charges – assuming the 360,000 affected expose the maximum £250,000 and are taxed at the full amount
- Just 19 per cent of people know what the LTA is
- Only 31 per cent of people earning more than £50,000 are aware of the LTA.
Standard Life said that individuals should consider whether the two new protection options might be suitable for them.
Head of consolidation at Standard Life, Alistair Hardie, said:
“Savers might be years away from retirement but if they have saved a fair amount in various pension funds they could be near the danger zone.”
In other pension news, The Pensions Advisory Service (TPAS) has launched a new initiative to support women in saving for retirement. Alongside a new leaflet, TPAS will launch a survey which will help tailor future support provided to women.