The number of individuals affected by next year’s cut in the lifetime limit for pension contributions is likely to be higher than Government figures suggest, according to pension provider Standard Life.
From 6 April 2014, the total value of savings that an individual can accrue in pension schemes before a tax charge is triggered reduces from £1.5 million to £1.25 million.
Standard Life estimates that the reduction in the lifetime limit will:
- affect more than the one per cent of pension savers originally envisaged by HMRC
- immediately affect 30,000 people
- affect 360,000 people in the longer term
- impact more than £250 billion of accumulated pension wealth.
The annual allowance – the amount you can make in pension contributions each year without attracting a tax charge – is also set to decrease from £50,000 to £40,000 from April 2014.
Standard Life said that many higher net worth individuals, such as those with competitive company pension schemes, are likely to be affected by the changes.
Alistair Hardie, head of customer consolidation at Standard Life, said:
These people face the difficult decision of whether to protect their existing pension benefits and stop pension funding, or carry on contributing and face a tax charge. And the clock is ticking for many.
“The two new options to lock into a higher allowance which have been introduced, while welcome, serve to complicate decision making for clients – decisions that many will not even realise are crucial to their future retirement planning strategy. And making the wrong decision could potentially expose up to £250,000 of their pension savings to a 55 per cent tax charge.”