New warning on Sunak’s “perverse” 55% pension tax – ‘it punishes pensioners for saving’ | Personal Finance | Finance

For decades the government has been encouraging people to set money aside for retirement and reduce their reliance on the State Pension. Yet those who have followed its advice face a brutal Treasury tax raid in return. Many will feel tricked.

At least 1.6 million savers are set to pay a punitive tax charge called the pensions lifetime allowance, or LTA.

This is charged if you save too much in a pension, even though that is exactly what the government wants us to do.

It is just another way that Sunak is raiding the nation’s pockets, as Britons hand more of their money to the Treasury than at any point in the last 70 years.

Last week, we revealed that some middle-income families face a punitive marginal income tax rate of a staggering 62.1 percent.

The pensions lifetime allowance is almost as vicious, and a lot more complex.

Although only better-off savers pay the LTA, pension experts say it is a sign of how far the government is willing to go as it bombards us with sneaky stealth taxes.

The lifetime allowance was originally imposed on people who had built up £1.8 million across all of their pensions, which meant only the wealthy paid it.

Yet as so often happens with taxes, more are getting dragged into the net, year after year.

Successive Chancellors have repeatedly cut the pensions lifetime allowance to today’s level of £1,073,100. Last year, Sunak froze it at that level for five years, until 2025/26 at least.

As inflation skyrockets, its value in real terms will plummet year after year, while the number of people paying it will rise.

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown has savaged the charge.

READ MORE: Now Brits pay more than HALF of earnings to HMRC – Sunak charges 62.1%

She said people who are safe today may not be in future. “The Government is supposed to be encouraging retirement savings so it is perverse to punish people for their diligence with a lifetime allowance charge.”

Morrissey added: “It was initially designed to only affect those with the largest pensions but Treasury tinkering means many more people are being stung for up to 55 percent of their pension.”

If the lifetime allowance had increased with inflation it would be twice as big as it is today, at more than £2 million, Morrissey calculates. “This may still seem like a large amount but people with long service in final salary schemes such as doctors and teachers are being hit. As are those who prioritise their pension saving with large contributions over their working lives.”

Many have stopped saving in a pension altogether, or taken early retirement, to avoid handing over more of the surplus pension to HMRC.

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Morrissey said this undermines people’s long-term planning and as well as general confidence in the fairness of our pensions system.

“It seems wrong to be forced to pay such a punishing tax charge simply for doing the right thing by planning for your future.”

She pointed out that the government already has a way of limiting the amount people pay into a pension, through the £40,000 annual allowance. “Adding the lifetime allowance on top makes for an overly complex system that becomes impossible for people to navigate.”

For example, a strong spell of stock market growth shortly before retirement could tip many over the threshold, especially as it shrinks in real terms.

While most ordinary people can breathe a sigh of relief because they will not pay the lifetime allowance, it shows how far this Government is willing to go.

With income taxed at up to 62.1 percent and pensions at 55 percent, there seems to be no limit to Sunak’s tax grab.