The Lifetime Allowance reduction – who will feel the effect?

0
Written by: Paloma Kubiak
26/02/2016
The pension Lifetime Allowance will be cut from £1.25m to £1m on 6 April – the third cut since 2012 and a 45% reduction in less than five years. But who will be hit the hardest?

Many commentators have said the previous reductions to the Lifetime Allowance (LTA) only impacted quite wealthy individuals.

But the latest reduction will impact hard working individuals who’ve been prudent in their saving towards retirement, according to Gary Smith, financial planner at Tilney Bestinvest.

Not only does it impact those who’ve built up pension funds that are close to the £1m limit, but those with modest pension pots today could be effected owing to future investment growth.

As an example, a 40-year-old pension saver with a fund value of £465,000 who doesn’t intend to contribute any more would exceed the £1m limit by their 65th birthday (based on a 5% annual growth rate).

For a 40-year-old with £289,000 in their pension pot who’s able to save £1,000 per month, they’d reach the £1m threshold by their 65th birthday.

And the same is true of a 40-year-old contributing £500 per month to a current fund value of £377,000.

The reduction in the LTA is likely to impact on significantly more individuals than the 55,000 the Chancellor estimated, said Smith, so many pension savers will potentially face a “very nasty surprise” when they reach retirement as they’ll incur a tax charge above the limit.

Smith added: “It also now seems inevitable that further attacks on pension tax reliefs and funding will be announced in the Chancellor’s forthcoming Budget statement on 16th March 2016 and, these changes could reduce the capacity for hard working savers to build up worthwhile pension values to support their anticipated retirement lifestyles.

“Indeed, the “squeeze” on pensions tax relief could be seen as a desperate act of a Chancellor in his attempt to secure a Budget surplus by the end of the current Parliament, whilst restricting his options to do so by promising not to increase Income Tax or National Insurance and ring-fencing some major departments from any spending cuts.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Insurance Experts: Are you fully insured? Click here to get a quote.

For a free quote or to speak with an insurance expert call 0800 1218744

Sorry. No data so far.

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

Tesco expected to post significant write-offs

Tesco is predicted to unveil the biggest loss in its 100-year history, according to analysts.

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
saving for a house
Got a Nutri-Bullet or walk in wardrobe? You’re a mid net worth individual

Millions of affluent homeowners are under-insuring their property and possessions as they don’t consider themselves ‘wealthy’.

Close