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Savers unaware of reduced Lifetime Allowance impact

Savers might not know what the impact of the reduction in the Lifetime Allowance to £1.25m will be on their retirement, MGM Advantage has warned.

The firm highlighted the effect by the example of a 40 year old with no savings, who then starts to put away 12% of a £90,000 salary towards a pension.

Under the new Lifetime Allowance limit the individual from the example could exceed the limit before reaching 65.

Pensions Technical Director Andrew Tully said that some may consider the £1.25m Lifetime Allowance limit to be pie in the sky, but warned that many could fall foul of the rules and end up incurring a tax charge.

Tully added that the situation was even more complicated for those with final salary pensions and other private provision.

He explained that seeking professional financial advice would pay dividends and allow relevant protection to be put in place and all viable options considered.

Last month Standard Life reported that up to 360,000 Britons would be affected by the reduction in the Lifetime Allowance.

The change, which comes into effect from 6 April 2014, will see the Lifetime Allowance decline from £1.5m to £1.25m and will, according to Standard Life, have an immediate impact upon 30,000 people.

Workplace pension savers who inadvertently exceed the new limit could expose as much as £250,000 of their pension savings to a 55% tax charge, which comes to £137,500.

Alistair Hardie, head of customer consolidation at Standard Life, advised those concerned by the decline in the limit to seek financial advice.

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