UK savers with an estimated £250bn worth of assets could be looking at significant tax bills following the introduction of new pension allowances in 2014.
The maximum tax efficient pensions saving that anyone in the UK is allowed to build, called a ‘lifetime allowance’ is going to be reduced from £1.5m to £1.25m.
Proposals put forward by the Liberal Democrats have suggested that this should be reduced to £1m in future years.
HM Revenue and Customs estimates that 30,000 individuals will have pension assets of more than £1.25 million in the 2014/15 tax year, meaning that they could face a tax bill upwards of £137,500.
Experts at Ludlow Wealth Management Group have warned that although the pension allowance sounds large the reduction will see even modest savers potentially facing in the region of 25-55% tax on their pension funds.
Jonathan Whitmarsh, a senior consultant at Ludlow, commented: “Many people believe the new lifetime allowance will only affect the wealthy but if they retire on a decent final salary pension and have been long standing members of this type of scheme, they may well unknowingly be facing a big tax bill.
“Middle earners such as teachers, doctors, policemen, civil servants and managers in the private sector are likely to be affected. However, savers can avoid this by either applying for ‘fixed protection’ or ‘individual protection’ as this will help limit any tax liabilities but it is advisable to check with their pension provider and assess the value of the fund.”