Stock market carnage bolsters demand to scrap the pensions cap

THE Government’s draconian pension tax crackdown coupled with last week’s global stock market rout is threatening the retirement planning of a generation of savers, chief executives from some of Britain’s biggest pension and investment firms have warned.

Last night leaders from across the financial sector condemned the Treasury’s new lower cap on pension saving, with some calling for it to be scrapped altogether.

More than a million people in their fifties and sixties – including teachers, doctors, lawyers and managers – will have their retirement savings restricted as a result of the lower pensions lifetime allowance, which from April 6 will fall from £1.25 million to £1 million.

Someone in their fifties with a £650,000 pension pot is in danger of reaching the limit even if they stop saving immediately, according to new analysis by Aegon, a pension firm.

Savers who break the limit are forced to pay taxes of 55 per cent when they subsequently withdraw the money.

In the coming weeks, savers will have a final opportunity to make the most of existing higher allowances by investing lump sums in their pensions.

However, investment firms say many are panic-selling their investments in reaction to tumbling stocks and shares. One firm, Dentons, said a number of its clients had lost six-figure sums.

The Daily Telegraph has established that up to 55,000 savers who have already suffered tens of thousands of pounds being knocked off their pension pots will face extra tax bills of more than £50,000 as they will not qualify for a safeguard against the cap called individual protection.

The double blow, which experts describe as “absurdly unfair”, will hit savers whose pensions were worth between £1 million and £1.25 million before markets fell last week.

If, as a result of their investments falling in value, their pensions are now worth less than £1 million, they will not be protected against the new, lower lifetime pension limit being introduced in April. As a result they will be hit with heavy tax bills – unless they quit pension saving immediately.

Calculations by Tilney Bestinvest, a financial adviser, shows someone whose pension fell in value from £1.1 million to £999,000 since the start of the year would face a £55,000 tax bill if they continue saving.

Guy Sears, chief executive at the Investment Association, which represents the biggest investment firms, said: “We think the lifetime pensions allowance should be scrapped completely. People must be given the confidence to save as much as they can.”

Ian Gorham, chief executive at Hargreaves Lansdown, Britain’s biggest investment broker, said: “Pension savers should be supported, not penalised.”

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