Over one million to be hit by LTA ‘timebomb’

An estimated 1.25 million people are set to breach the current Lifetime Allowance (LTA) limit for pensions tax relief, according to new research from Royal London.

Analysis from the mutual insurer found that 290,000 workers already have pension rights above the £1.03m limit, while more than half of these are thought to be continuing to add to their pension pots.

Those who breach the limit are set to face a 55 per cent tax bill on savings above this level, while fewer than half of the 290,000 thought to have breached the allowance have applied for protection against past reductions.

Commenting on the findings, Royal London director of policy, Steve Webb, said: “This research shows, for the first time, how the drastic cuts in the LTA mean that large numbers of workers will now be caught by a limit that was originally only designed for the super-rich.

“It is shocking that over a quarter of a million people have already breached the LTA and that many of these are still adding to their pensions. They are likely to get a nasty shock – and a big tax bill – when they do finally draw their pensions.”

The analysis found that those most likely to be affected are senior public sector workers, whose defined benefit rights will exceed LTA, or workers paying into a defined contribution pension who receive generous employer contributions.

“This is truly a LTA timebomb. Many workers, especially those in DB pension schemes, will have little idea that this is an issue and could be heading for a nasty jolt.

“The government needs to think hard about how to make sure people are aware of these limits in time to make alternative arrangements, and individuals need to take expert advice if they are to avoid potentially huge tax bills.“

Since 2010, the LTA has fallen from £1.75m, reaching £1m at its lowest point before increasing to its current level. It is set to increase to £1.05m for 2019/20.

The current LTA limit is increased in line with the consumer price index (CPI), however wages are set to grow faster than inflation, while long-term investments should also grow faster than inflation over the long-term.

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