Britons are being urged to consider diverting their savings to avoid paying a tax rate of 55 percent.
If you save too much for retirement, you could face a 55% tax penalty.
People work hard their entire lives in order to achieve their objectives, which include saving enough money for a comfortable retirement.
However, if Britons aren’t careful, they risk exceeding their Lifetime Allowance and paying a significant penalty.
The Lifetime Allowance (LTA) is the maximum amount of money that can be put into a pension before taxation kicks in.
It is currently frozen at £1,073,100, and will remain so until 2026.
Many people aren’t aware of the limit or believe they’ll never reach it, but the Lifetime Allowance is something that every saver should be aware of.
This is because the penalties for exceeding the allowance can be severe, eroding people’s hard-earned retirement savings.
Romi Savova, CEO of PensionBee, discussed the ramifications of exceeding the Lifetime Allowance and how Britons can avoid doing so.
“Savers with significant pensions should be aware of the implications of the Lifetime Allowance, which is currently capped at £1,073,100 for the next four years,” she said.
“Those who are near or on the threshold should consider diverting some of their savings to a tax-efficient savings vehicle, such as an ISA, to avoid penalties of up to 55 percent for exceeding the limit and making withdrawals.”
“To avoid exceeding the threshold, savers may want to consider combining their pensions into one pot, which would give them complete transparency over their savings and allow them to adjust their contributions if necessary.”
“While there are already reasonable annual limits on how much an individual can contribute to their pension, the current Lifetime Allowance limit punishes those who have diligently saved throughout their working lives.”
As people put money into their pension pot throughout their careers, Ms Savova explained how they could easily find themselves approaching the upper limit.
“A £1 million pension would roughly generate a £35,000 annual income, which is not an excessive amount for many retirees who find themselves free of work and looking forward to enjoying their retirement,” she explained.
“The Lifetime Allowance also discourages young savers from contributing meaningfully to their retirement savings.”
The Lifetime Allowance has changed, according to Ian Browne, a retirement planning expert at Quilter.
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