New rules on the total amount of money that can be saved tax-free in a pension are set to come into force in April 2016.<\/p>\n
The lifetime allowance was \u00a31.8m in 2011-12, but George Osborne reduced this to \u00a31.25m in 2014, and the limit will now be lowered further, to \u00a31m.<\/p>\n
Pension savings in excess of \u00a31m will be taxed at 55 per cent when the pension pot is accessed. Labour had already announced its intention to do this, so it seems the change will take place regardless of the outcome of the General Election.<\/p>\n
It\u2019s another huge blow for people who have carefully and responsibly saved for their retirement.<\/p>\n
Mr Osborne claimed that just 4 per cent of the wealthiest savers will be affected by the lifetime allowance. If you consider that there are around 11.5 million people approaching retirement, aged between 50 and 65, some 460,000 people could be affected.<\/p>\n
So how do you make sure you’re not caught out? The main thing is to monitor how much you\u2019re putting into your pension funds and how well your investments are performing. Money held in a personal pension, including workplace schemes and Sipps, counts towards the limit, but the state pension doesn\u2019t.<\/p>\n
If you have a defined contribution scheme or a Sipp the total fund value is assessed against the limit. This will be tested on nine different occasions such as when you take your 25pc tax-free cash, you buy an annuity or you start drawing an income.<\/p>\n
Final salary schemes, the most generous of all workplace pensions, are assessed differently. To determine the total value of a scheme that you have not yet accessed, you simply multiply the annual pension by 20, then add any additional tax-free cash. For example a final salary scheme that will pay \u00a340,000 a year is worth \u00a3800,000 in relation to the limit.<\/p>\n
Generally if your final salary pension is worth more than \u00a358,000 a year you’ll be over the \u00a31m lifetime allowance, but ask your company for full details if you\u2019re concerned.<\/p>\n
If your pension is already worth more than \u00a31m, you can apply for \u201cprotection\u201d which will allow you to maintain the previous \u00a31.25m limit. But you won\u2019t be able to put any more money into your pot and if you do, the protection will be lost immediately and your limit will automatically fall to \u00a31m.<\/p>\n
Alan Higham, retirement director at Fidelity Worldwide Investment, said the first stage should be a conversation with a financial adviser. He said: \u201cYou should take action now. A possible starting point is an initial conversation with a retirement expert to identify what tax you might be exposed to.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
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