The Pension Lifetime Allowance limits the amount a person can save in their lifetime without being subject to a hefty tax. Exceeding the limit – currently £1,073,100 – means Britons could be subject to a 55 percent tax.
There are concerns individuals are sleepwalking into a tax trap which could have a negative impact on their retirement.
This comes as a Freedom of Information request undertaken by InvestingReviews showed the scale of the issue.
It found there are 2,300 taxpayers who are still paying into personal pension schemes despite existing pots already exceeding the Lifetime Allowance limit.
According to the data, there were 2,100 actively contributing personal pension pots worth £1million and £1,999,999.
READ MORE: Pension alert as risk of ‘pensioner poverty’ rises
The Lifetime Allowance will be frozen at its current rate until the 2025/26 tax year.
It means more pensions will be dragged into the tax trap as wages, contributions and investment grow.
Some have described this as tax “by stealth”, hitting back at the policy.
Simon Jones, CEO at InvestingReviews, said: “Rishi Sunak was the hero of the hour during the pandemic.
“But more recently his approval ratings have begun to wane as focus has shifted to his punishing tax regime.
“These numbers should serve as a huge wake-up call for pension holders across the country.
“With the taxman poised to swoop on anyone breaching the Lifetime Allowance, it’s never been more important for people to plan ahead and see how they can avoid losing big chunks of their retirement pots.”
To avoid the tax raid, experts are warning savers to consider other methods of putting money aside.
This can include products such as ISAs which also have tax-free benefits.
The decision, however, will depend on a person’s investment profile as well as their employment status.
A Treasury spokesperson previously told Express.co.uk: “Maintaining the lifetime allowance at its current level allows savers to continue to make significant amounts of pension savings tax-free.
“Overall, 92 percent of individuals currently approaching retirement have a pension pot worth less than the lifetime allowance, so will not face a lifetime allowance charge.
“The median pension pot for individuals approaching retirement is around £150,000.”
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.
