Andrew Sullivan says that inadequate planning is setting up savers for unnecessarily large tax bills
With less than a month to go before the lifetime allowance is cut from £1.5m to £1.25m, a new survey by deVere Group shows that as many as 46% of potentially liable pension holders have taken no action to mitigate the effects of the new legislation which reduces the amount that can be saved tax-free in a pension.
deVere founder and CEO Nigel Green finds it “astonishing that such a high number of savers who have worked hard all their lives to be able to enjoy the retirement they want are putting themselves at risk of being hit with a tax of up to 55%.”
One of the possible reasons for such apparent apathy would seem to be a lack of awareness among pension holders that this change could affect them – £1.25m does, after all, seem a long way off to most.
Not so, says Green.
Of the change in ceiling he observes: “It will affect many more hard-working savers than might be expected. Many will reach the threshold sooner than they think, as values of portfolios increase. Even if a pension pot is significantly below £1.25m today, it is perfectly possible – and indeed likely – for many in their 30s and 40s to accumulate pensions savings of £1.25m by the time they retire.”
How to Safeguard a Pension?
As ever, professional financial advice is essential, since individual circumstances differ and hasty, ill-considered action could prove disastrous.
But one domestic option that Green suggests is to apply to HMRC for ‘Fixed Protection 2014’ before April 5; expats might consider transferring the pension into the HMRC-recognised Qualifying Recognised Overseas Pension Scheme (QROPS).
The LTA was first introduced in 2006 and was set at £1.5m. By 2010-11 it had been raised to £1.8m, then cut back again to £1.5m, and now to £1.25m, as of April 6 2014. And they wonder why pension fund holders complain about a permanently shifting tide…