Monday 17 March 2014

'Pie in the sky' Lifetime Allowance not just a concern for richest savers

MGM Advantage is warning that savers may be unaware of the effect that the revised Lifetime Allowance limit of £1.25m will have on their retirement.

As an example, someone aged 40, who has no previous pension savings, starts to pay 12% of a £90,000 salary into a pension (combined employer and employee contribution rate) could exceed the Lifetime Allowance by the age of 651.
Andrew Tully, Pensions Technical Director, MGM Advantage commented: ‘People may think all the talk of a £1.25m Lifetime Allowance is like pie in the sky. But many people could find themselves fall foul of the rules and unsuspectingly get caught out by a tax charge. Our figures show just how easily the limit can be breached, even if you haven’t started saving into a pension before.
‘The position gets even more complicated for savers with final salary pensions, as well as other private provision. This is where seeking professional financial advice will pay dividends in ensuring any relevant protection is in place and that all your options have been considered.’
Where people have made contributions into pensions, the current pot sizes (valued today) in the table below could exceed the Lifetime Allowance at age 65 with no further contributions being made.
Age
Current value of DC pension2
40
£291,248
45
£389,756
50
£521,581
60
£934,073
A £1.25m pension (having taken 25% tax-free cash of £312,500), would generate an annual index-linked income of £26,850 for a healthy 65-year, with a 50% spouse pension3.
Sources:
  1. Source: MGM Advantage. Assumes a 6% investment return, after charges. Salary increases at 4% annually.
  2. Source: MGM Advantage. Assumes a 6% investment return, after charges.
  3. Source: Average rates from Money Advice Service annuity comparisons (10.3.14).

No comments:

Post a Comment