Pensioners face 55% tax penalty for excessive saving
Friday 7th March 2014
People who are saving significant amounts towards their retirement through a pension will be penalised with a 55 per cent tax rate when the lifetime allowance threshold (LTA) is reduced from £1.5m to £1.25m on April 6, according to ACCA (the Association of Chartered Certified Accountants).
When the new limit comes into force, any excess above the £1.25m will be taxed at 55 per cent. ACCA says this might discourage people from saving too much for when they retire.
Chas Roy-Chowdhury, ACCA head of taxation, said: “While £1.25m might seem like a lot, the limit is not a penalty specifically on the rich. For those in their 30s and 40s, £1.25m or more might resemble a not uncommon-sized pension pot by the time they retire in 30 years’ time.
“Even today, a surprisingly high number of those nearing retirement are likely to have pension pots edging over that limit. The on-set of paying 55 per cent tax on the amount saved above the threshold is hardly an incentive for people to save for their retirement through a pension.
“Those in the public sector will probably see the full impact of this the most, as many are still in the final salary schemes that will pay out higher amounts and therefore create a higher value ‘pension pot’.”
People have one month to prepare for it. Although this looks like a tax for the wealthy in retirement, many believe more and more people will get caught by it over time, especially public sector workers, who tend to have the high paying final salary pensions.
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