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‘Wake-up call’ for pension holders as thousands face potential tax charges

By Vicky Shaw
PA Archive

Thousands of pension savers potentially face tax charges as they have more than the lifetime allowance sitting in their personal pensions, figures indicate.

Around 2,300 people have been paying into personal pension schemes exceeding the lifetime allowance of £1,073,100, according to HM Revenue and Customs (HMRC) data.

InvestingReviews.co.uk obtained the figures from HMRC following a freedom of information (FOI) request.

The figures also show that around 100 people have been actively contributing into funds worth £4 million-plus.

The data covers the tax year ending April 2020 and specifically covers active contributions being made into certain pensions during that tax year, so the figures will not be fully complete.

The lifetime allowance is the maximum amount of pension saving subject to tax relief that a person can build up over their lifetime.

The rate of tax paid on pension savings above the lifetime allowance depends on how the money is paid. It can be as much as 55% if it is taken as a lump sum.

These numbers should serve as a huge wake-up call for pension holders across the country

Simon Jones, InvestingReviews.co.uk

Experts have warned that people may find themselves sleepwalking into tax charges and some may want to consider alternative savings options, such as Isas.

InvestingReviews.co.uk chief executive Simon Jones said: “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.”

People usually pay tax if their pension pots are worth more than the lifetime allowance. They will receive a statement from their pension provider saying how much tax they owe.

The amount that counts towards the allowance depends on the type of pension pot someone has, and if they are in more than one pension scheme they should factor in all the schemes they belong to.

In some cases, savers with funds above £1,073,100 may not be subject to a lifetime allowance charge.

The lifetime allowance has been reduced over time, and people may be able to apply to protect their lifetime allowance from the reduction.

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Dive Deeper:
More than 2,000 pension savers face potential tax charges for exceeding lifetime personal allowance limit
Experts have warned people may find themselves sleepwalking into tax charges.
Warning to pensioners as some could lose more than half their savings to tax
"These numbers should serve as a huge wake-up call for pension holders across the country."
Six ways to check you're not paying too much tax
You might be entitled to pay less tax without even realising
Older people can no longer claim these DWP benefits when they reach State Pension age
There are two benefits you may be eligible to claim now that could carry over when you reach 66.
One subscription that gives you access to news from hundreds of sites
Changes to DWP pension age means older people can't claim some benefits when they reach state pension age
Changes to the state pension age will increase it to 67 for people born on or after 1960, this could…
Everyone urged to check for 'hidden' savings account after man finds £300
A homeless man's life was transformed after he found £300 in a 'lost' bank account and is urging everyone to…
Get all your news in one place