Pension shock as Rishi Sunak’s 55% ‘penal’ tax will hit ‘average earning’ Britons hard | Personal Finance | Finance
More pension savers are at risk of a staggering 55 percent tax on retirement savings due to action taken by the Chancellor Rishi Sunak. Mr Sunak recently announced a freeze to the Pension Lifetime Allowance – the maximum a person can hold in personal and workplace pensions over their lifetime.
The allowance will be held at £1,073,100 until 2026.
Although people may not think they are remotely close to this threshold, inflation over time could see them breaching the limit.
The consequence is a hefty 55 percent tax bill which could eat away at pension cash.
Henry Tapper, Chair of AgeWage and non-executive chair of PensionPlaypen told Express.co.uk: “Freezing the annual allowance at this time will come as a shock to many who have saved hard throughout their lives and are expecting to draw on their savings or be paid a pension without penal taxation.
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If an individual at this level were to draw just four percent of their fund per year, they would be receiving an income of only £30,000.
This was a sentiment echoed by Saw Hussain, founder of People-tech and PensionPlaypen ‘All Star’, who said the freezing of the Lifetime Allowance has impacted more than just senior executives at companies.
“Many people with a number of years of service in a final salary pension scheme can see themselves being impacted by the freeze.
“It is causing issues for people in defined contribution schemes. They had set their investment strategies in a way to try and get to an assumed level of the lifetime allowance.
“However, with the freeze, some are having to alter how their money is invested.”
Mr Hussain explained people may choose to take the risk out of their investments and accept a lower rate of return.
Alternatively, individuals could just accept they will go over the limit and fork out for the tax.
The third option would be to depart from the pension scheme altogether.
In this case, Britons could ask the employer for a cash sum in lieu of pension scheme membership.
Robin Ellison, Consultant at Pinsent Mason, added: “The limits on both annual and lifetime allowances are unnecessary to protect the Treasury; they are horribly complicated, difficult to understand, and apply to ever more of us.
“It is probably time that they were scrapped entirely, in line with the Government’s policy of better regulation.”
Those who are worried about the future of their pension may benefit from Pension Wise, the free impartial Government service.
Others may wish to seek the guidance of a financial adviser before they make any pension-related decisions.
Express.co.uk has contacted HM Treasury for comment.
