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Why you should ignore pension raid rumours

Don't stop contributing to your pensions because of a rumour
Why you should ignore pension raid rumours

If you read the Sunday papers you may have seen reports that HM Treasury is considering reducing the pensions lifetime allowance by up to a quarter from £1,073,100 to around £800,000. If this happens, many more investors could breach the pensions lifetime allowance and incur the relevant tax penalties. And this isn't something that would just happen to the mega-rich: many professionals such as NHS and public sector employees in defined-benefit (DB) schemes and employees who have diligently contributed to other types of workplace pensions for decades could fall foul of such a lower limit.

“For example, a DB pension member with a final pensionable salary of £69,566 and 40 years of service would easily accrue a pension of around £34,000 and a lump sum of £104,000, which would breach a lifetime allowance of £800,000,” says Ian Browne, pensions expert at wealth manager Quilter. “And for defined-contribution pensions savers, assuming that the lifetime allowance is frozen indefinitely at this lower level, it is a realistic prospect that someone aged 50 with a pension value of £384,814 [could] hit a limit of £800,000 in 15 years’ time at age 65, if we assume 5 per cent a year investment returns.”

But don’t dig out the forms for opting out of your workplace pension or cancel your monthly direct debits into your self-invested personal pension (Sipp) yet. This is just a report that something is being considered and may not happen. There have been many rumours about raids on pensions over the years which have not been borne out.

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