Pensions cap: Any chance of a U-turn, George?

In a matter of weeks, the lifetime allowance (LTA) on the size of individual pensions falls from £1.25m to £1m.

Holdings beyond this limit will be taxed at 55% when drawn out.

It is unclear how many people will be affected, but even the government’s own estimate puts the number at 55,000.

Others claim the real figure is closer to, or even higher than, one million.

Whatever the true number, one thing is clear: this is a politically risky move by George Osborne and one that will leave many prudent savers significantly worse off.

The previous cap of £1.25m, was unpopular enough but the chancellor’s reforms – due to take effect on 6th April 2016 – have provoked unbridled outrage and dismay.

Telegraph journalist Richard Dyson recently unleashed a polemic, describing the new cap as “ill-conceived, unfair and crude.”

He wrote:

“It’s a tax that defies common sense and fails to serve any policy objective. It’s a tax on prudent saving, because it hits those savers who invest earliest in their careers. It’s a tax on younger generations, because they’re the ones most likely to pay it. And it’s a tax on successful investment – because it hits those whose savings grow most. It’s not a tax that applies a limit to what you put into your pension: on the contrary, it’s an arbitrary penalty on those whose pensions perform well.”

Many middle-class savers will be hoping that the pensions cap follows in the footsteps of Mr Osborne’s tax-credits plan and gets consigned to the scrapheap. The chancellor may or may not bow to political pressure and perform a U-turn, but savers should act on the basis that the reforms are going ahead as planned.

Call us today on 01244 347583 or email info@innesreid.co.uk for advice on minimising the impact of the new cap.