The Inland Revenue's softening of the £1.4m lifetime pension limit means people who exceed the limit will not be penalised, say providers and advisers.
The reduction of the recovery charge to 25 per cent from 33.3 per cent gives an overall tax rate on excess funds of 55 per cent, which experts say is broadly equivalent to saving outside a pension.
Taking into account combined National Insurance contributions of 13 per cent, employer contributions and tax-free investment fund growth, saving in a pension above the lifetime limit could even be
tax-efficient in some circumstances, according to Hargreaves Lansdown.
But the Treasury is calling for the National Audit Office to check the number of people likely to be affected and determine whether the £1.4m limit reflects current tax relief. In March, it will then decide whether to proceed with simplification or keep the current system of eight different tax regimes.
Standard Life senior technical manager John Lawson says: “The Revenue has given so many concessions around the lifetime limit that we can say that people no longer have to worry about funding over the limit.
With the recovery charge reduced to an effective overall charge of 55 per cent, having your funds inside the pension would leave you in more or less the same tax position as an individual outside the pension.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “Our preliminary calculations suggest that there is a strong case for higher earners to fund over £1.4m where there is an employer
contribution and the benefit of National Insurance contributions and where several years' investment growth is expected. My instinct is that the lifetime limit is no longer an issue.”
Scottish Equitable pensions development director Stewart Ritchie says: “The pension industry seems almost unanimous in wanting to press ahead with pension simplification.”