More than one in two higher-rate taxpayers have restarted or boosted pension payments in light of the recent changes to the lifetime allowance (LTA), or says they plan to do so in the near future.
This survey, by Investec Wealth & Investments, shows that the Chancellor’s decision to remove this £1.073m limit – announced in this year’s budget – is having a dramatic impact on retirement planning, particularly among those on higher incomes.
In total 51 per cent said they have already restarted or increased pension contributions. This includes 16 per cent who had stopped pension saving because they had reached or were close to the LTA. Those who have already increased pension payments say they are putting in an additional £650 a month.
Nearly a quarter (23 per cent) of respondents said they have delayed their planned retirement or will probably delay retirement plans because they can now save more into their pension. Around 10 per cent say they have come out of retirement as a result, while another 6 per cent say they are planning on coming out of retirement.
In total Investec says this means around six out of 10 higher rate taxpayers have taken some action as a result of these LTA changes.
Before this change was introduced savers breaching the LTA faced major tax penalties of 55 per cent for lump sum withdrawals, and 25 per cent plus income tax for income withdrawals.
The most recent HMRC data shows that prior to this changes 8,610 LTA charges worth £382 million were reported by pension schemes.
Investec Wealth & Investment financial planning director Ade Babatunde says: “Scrapping the Lifetime Allowance was a surprise in this year’s Budget and it seems to have been very much welcomed by those who have built significant wealth across their pensions and by higher, and additional, rate tax payers.
“It’s worth remembering that the LTA was £1.5 million when it was first introduced in 2006 and went as high as £1.8 million at one stage so the gradual reduction meant it potentially affected more and more taxpayers and had a major impact on the amount they were willing to contribute to their pensions.
“Abolishing the LTA simplifies some decisions around retirement and estate planning but also makes it more important that people seek independent advice on pensions due to the changes in tax treatment.”