British Retirees Risk Hefty Additional Tax Burdens as Pension Reform Looms

British retirees risk being hit with hefty additional tax burdens when the lifetime allowance for pensions drops. Almost half of private pensioners have still done nothing to reduce the liabilities, according to research.

According to financial consultants deVere Group, more than four in ten (46%) pension holders over or near the lifetime allowance (LTA) threshold, have not yet taken action of any kind to mitigate the effect of the reduction of the LTA limit from £1.5m to £1.25m in April.

"People who have already accumulated pension pots of more than £1.25m or can expect to, have just a month left to protect their retirement income from the LTA drop and potentially save thousands of pounds in tax," said Nigel Green, the founder and chief executive of deVere Group.

He added: "It's astonishing that such a high number of savers, most of whom have worked hard all their lives to be able to enjoy the retirement they want, are putting themselves at risk of being hit with a tax of up to 55%."

The lifetime allowance, the amount that can be saved tax-free in a pension, was first introduced in 2006 and was set at £1.5m and by 2010-11 had been increased to £1.8m.

But it was cut back again to £1.5m in 2012 and the further reduction – to £1.25m – will come into effect on 6th April 2014.

Savers with pots more than £1.25m can elect for "fixed protection 2014" with HM Revenue and Customs by 5 April 2014, which enables people to set their allowance at £1.5m.

This means that people can take pension savings worth up to £1.5m without paying the lifetime allowance charge.