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Standard warns of 60% tax over lifetime limit

People aged 30 who earn £41,000 a year will hit the £1.4m lifetime pension contribution limit when they retire unless it is linked to earnings and not prices, Standard Life has warned.

The company says linking the limit to prices means that 5 per cent of male earners will be hit with 60 per cent tax under their current savings plans. Chancellor Gordon Brown is thought by some in the industry to be the driving force behind tying pension tax incentives to prices rather than earnings. Based on current annuity rates, a 30-year-old targeting two-thirds retirement income would only need to see real earnings growth of 2 per cent a year to hit the lifetime limit by age 60.

Standard Life is calling for the £1.4m limit to be attached to wage inflation rather than prices and is also calling for a five-yearly review of the limit to take into account other factors affecting annuity returns such as increased longevity and long-term interest rates.

These factors could see an even bigger proportion of the population hit the limit.

The ABI is yet to reveal its Green Paper response but supports Standard&#39s call.

Standard Life senior technical manager John Lawson says: “As many as 5 per cent of full-time males could be hit by the £1.4m lifetime limit under their current retirement planning arrangements, a figure that will rise if longevity continues to grow.”

Wentworth Rose managing director Philip Rose says: “When Thatcher pulled the trick of switching pensions from earnings to prices, Labour condemned her for it. Brown is pulling exactly the same stunt. This is a poor proposal and I really hope there is a rethink.”

A Treasury spokesman says: “This is a consultation and we have not yet made a decision on how we are going to upgrade the lifetime limit.”

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