Many industry experts have called on the Government to reverse its planned restriction on higher-rate pension tax relief for those earning over £130,000, due to be introduced next April, and instead to reduce the annual allowance to £50,000.
Skandia says the Government is already saving money by freezing the lifetime pension allowance until 2016 and should not impose a lower limit on contributions at the same time. The provider says many individuals make modest or no pension contributions in their early professional years and make up for this with significant contributions in later life when they have more excess income.
Platform marketing manager Adrian Walker says to reach the current lifetime allowance of £1.8m, an individual would have to save £43,919 for 25 years, assuming an annual growth rate of 5 per cent.
He says: “If they delayed this by 5 years they would have to save £60,768 every year to reach the allowance. With a cap on annual contributions at £50,000 these people would never be able to make up the difference required to reach the lifetime allowance.”
Walker believes the Government should instead extend the freeze on the lifetime allowance for at least a further five year period beyond 2016 or even reduce it.
He says: “If the Government does impose a lower cap on annual pension contributions it should at least remove the lifetime allowance limit to encourage people to save over long periods of time without fear that they will incur another tax charge by exceeding the limit and allowing them to benefit from whatever investment returns they are able to achieve through that period of time.”