Pension alert as Rishi Sunak decision means Britons may face ‘additional tax charges’ | Personal Finance | Finance
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Pension savers are potentially at risk of a shock if they save above a limit, with a 55 percent tax charge imposed. This could occur due to Pension Lifetime Allowance rules, which set the maximum a person can hold in personal and workplace pensions over their lifetime. The Lifetime Allowance (LTA) is currently set at £1,073,100 – but will be frozen at its current level until the 2025/26 tax year.
This decision, introduced by the Chancellor, may have serious consequences.
Individuals may not think their pension savings will be anywhere close to the limit.
But as inflation soars and investments grow over time, more people could find themselves exceeding the limit.
This could occur without a person doing much, and so could have major implications.
READ MORE: Inheritance tax: Britons ‘don’t realise’ they’ll be hit by Sunak tax
Adrian Lowery, personal finance expert at Bestinvest, explained: “Exceeding the standard LTA of £1,073,100, will lead to additional tax charges on the excess when you come to take your pension benefits or turn 75.”
Experts are concerned about the impact of this freeze, as well as the rules generally.
Highlighting the impacts to Express.co.uk, Robin Ellison, consultant at Pinsent Masons and Pension Playpen All Star, said: “The limits on both annual and lifetime allowances are unnecessary to protect the Treasury; they are horribly complicated, difficult to understand, and apply to ever more of us, with adverse unintended consequences for, for example, hospital doctors.
“It is probably time that they were scrapped entirely, in line with the Government’s policy of better regulation.”
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This is the total sum of personal contributions, employer contributions and Government tax relief in a year.
The sum cannot be exceeded by pension savers.
There are, however, more rigid and complicated rules for the very highest earners under a tapering allowance.
Mr Lowery added: “These can reduce the annual allowance to as little as £10,000.”
Louise Higham, a chartered financial planner at Tilney, Smith & Williamson, also issued a word of warning when it comes to pension rules.
She said: “You can’t contribute more than 100 percent of your earnings to a pension during the tax year.
“So if your salary is lower than £40,000 then you are limited to contributing your annual earnings into pensions.”
Individuals who are unsure about implications for their pension are urged to seek financial advice.
They could get support through the Government-backed, independent service PensionWise. Alternatively, people could seek their own financial council before making potentially life-changing decisions.
An HM Treasury spokesperson told Express.co.uk: “Maintaining the lifetime allowance at its current level allows savers to continue to make significant amounts of pension saving tax-free.
“Overall, 92 percent of individuals currently approaching retirement have a pension pot worth less than the Lifetime Allowance, so will not face a charge, while the median pension pot for individuals approaching retirement is around £150,000.”
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