Standard Life says the Government’s decision to cut the lifetime allowance for tax-free pension saving from £1.5m to £1.25m will impact 360,000 savers.
In the December Autumn Statement, Chancellor George Osborne announced plans to reduce the lifetime allowance by £250,000 from April next year. The Government will also reduce the annual allowance from £50,000 to £40,000.
Standard Life says while just 30,000 people will immediately be affected by the lifetime allowance cut, more the ten times this number are expected to break the limit over the long-term.
Standard Life head of customer consolidation Alistair Hardie says: “These people face the difficult decision of whether to protect their existing pension benefits and stop pension funding, or carry on contributing and face a tax charge. And the clock is ticking for many.”
Investors have two options which will allow them to retain a higher lifetime allowance – fixed protection and individual protection.
Hardie says: “The two new options to lock into a higher allowance which have been introduced, while welcome, serve to complicate decision making for clients – decisions that many will not even realise are crucial to their future retirement planning strategy.
“Making the wrong decision could potentially expose up to £250,000 of their pension savings to a 55 per cent tax charge. Expert financial advice is the essential component to achieving the best possible outcome for them.
“While the £1.25m limit may not set alarm bells ringing for other clients just yet they have to take into consideration that investment growth can quickly accelerate the size of the pension pot that could ultimately lead to a client’s fund exceeding the LTA.
“These changes could radically alter the retirement strategies advisers have in place for their wealthier clients.”