Lifetime allowance … use it or lose it

Thousands of people saving for retirement risk being caught by a reduction in the total amount an individual can save into their pension eligible for tax relief.

This will fall to £1.25million next year, from £1.5million already mooted in the near future.

It is estimated that 30,000 people nearing retirement will be hit by the change, including members of final salary schemes. It’s not all doom and gloom, however, as there is some planning that savers can undertake to mitigate the impact.

What are the changes?

The amount you can save into your pension over your lifetime is being cut by £250,000. While this sounds like a lot of money, it may not go far when it comes to funding your lifestyle in retirement. For example, a 65-year-old who has maximised their lifetime allowance and taken 25% tax-free cash will be able to buy an index-linked annual income of £34,490. If no cash is taken, it will buy a pension of £45,987.

People on more modest pensions and some years from retirement will also be at risk. A fund valued at £470,000 today would be worth £1.25million in 20 years, given a 5% annual investment return net of charges.

Find out what happens if you breach the limit, how to mitigate the impact of the changes and full information on how the reduction in the total amount an individual can save may affect future plans, by downloading the full article.