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.

Another six months working from home: Expenses, benefits and insurance must knows

The government has changed its message on working from home, with those who can, encouraged to do so. Here’s w...
Another six months working from home: Expenses, benefits and insurance must knows

NatWest launches regular savings account paying 3% interest

NatWest has launched a Digital Regular Saver offering 3% in a bid to get customers in the habit of putting mon...
NatWest launches regular savings account paying 3% interest

Furloughed and self-employed receive £50bn in government support

The government has handed out nearly £40bn to cover furloughed staff wages while grants for the self-employed...
Furloughed and self-employed receive £50bn in government support

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...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

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.

Money Tips of the Week

Read previous post:
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