Chancellor Jeremy Hunt shocked Britons when he announced the abolition of the Pension Lifetime Allowance (LTA). In addition to this, the Exchequer has also introduced a raft of pension changes which will have implications for millions of people.
With this in mind, Express.co.uk spoke to Henry Tapper, the chair of Pension Playpen, who outlined his ongoing “headache” when it comes to pensions and taxation.
The 61-year-old explained he has worked for much of his life building up guaranteed rights to a pension, while offering consultancy to companies.
But having reviewed his tax position on pensions in early 2014, he found that for the purposes of his Lifetime Allowance, his “accrued” pensions were worth £900,000.
The Lifetime Allowance saw a cap placed on the amount a person could save into their pension throughout their lifetime before being subject to a 55 percent tax penalty.
READ MORE: Woman quits 9-5 and earns up to £3,000 a month as Avon lady
It was capped at £1,073,100 for a number of years.
Mr Tapper explained: “At the time, I had just over £400,000 in my self-employed retirement savings pot as a stakeholder pension.
“After taking financial advice, I applied for 2014 fixed term protection – which meant even if the value of my pensions exceeded £1.5million, I would not have to pay penal tax at 55 percent.
“As the value of my total benefits at the time was ‘only’ £1.3million, it meant I needn’t breach the Lifetime Allowance.”
The deal Mr Tapper struck with the taxman meant he would not accrue anything more in his defined benefit pension – which he described as “fine”, as he was no longer able to do so, anyway.
In addition, he promised he would not make any further contributions to his workplace plan, and so for the last nine years he hasn’t used any allowances or contributed a penny to his pot.
Meanwhile, his pension pot rose, before falling once again in 2022.
By freezing his pension contributions, Mr Tapper thought he was doing the right thing to avoid a huge tax bill of 55 percent.
But with the abolition of the Lifetime Allowance by Chancellor Jeremy Hunt in the spring Budget, Mr Tapper said his foresight appeared “pointless”.
He continued: “I could have carried on saving into my pension pot.
READ MORE: Tax code 1257L explained as Britons urged to check payslips
“None of my savings or pension accrual was going to be subject to the Lifetime Allowance charge after April 2023.”
However, the increased annual allowance also enacted by Mr Hunt in the spring Budget provides better news.
Mr Tapper can now use this to make a large single payment into his pot based on his earnings.
While he can only carry over from the previous three tax years, this could provide his pension with a valuable boost. In addition, he can pay in more in future, benefitting from the new uplift to the annual allowance.
However, Mr Tapper remains worried about what the future may bring for his pension – namely, with a general election looming.
He said: “But things are never simple. I’ve also read about Labour’s plans to retrospectively reapply to the LTA should they become the Government after the next general election.
“Should I top up my pension with money from earnings and savings, there would be a political risk I’d be caught by the old charge I’d planned to avoid.”
As a result, Mr Tapper feels this is creating a “headache”, one he stresses he “doesn’t need”.
He added: “I feel I have done the right thing and followed the rules, never trying to outsmart HMRC.
“I am happy I have more tax-free cash, and I am pleased I can save more and I can backdate a big payment to make up for lost years saving between 2014 and 2023.
“But I feel that whatever I do, it will continue to give me nagging doubts. Is it any wonder people find pensions too hard?!”
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.
