Almost a quarter (23 per cent) of savers have delayed their retirement because they can save more into their pension, according to research by Investec Wealth & Investment.
The research, which interviewed 1,070 UK adults between June 16 and 19 and included 146 higher rate taxpayers, found that the scrapping of the pension lifetime allowance in this year’s Budget is having an impact on pension saving and retirement planning.
Removing the £1.073mn limit on pension saving ended a disincentive for retirement saving which had led to higher earners retiring early and major tax penalties of 55 per cent for lump sum withdrawals.
It also meant 25 per cent plus income tax for income tax withdrawals for those who breached the allowance.
The survey revealed that around 10 per cent said they have come out of retirement as a result of the LTA changes while another 6 per cent said they are planning on coming out of retirement.
More than half (51 per cent) of higher rate taxpayers said they have restarted, increased or plan to increase pension contributions, which includes 16 per cent who had stopped pension saving because they had reached or were close to the LTA .
Those who have already increased pension payments say they are putting in an additional £650 a month.
For higher rate taxpayers, the LTA change has meant nearly six out of 10 (59 per cent) are taking a range of actions as a result.
Ade Babatunde, financial planning director at Investec Wealth & Investment, said scrapping the LTA was a surprise in this year’s Budget but it’s been welcomed by those who have built significant wealth across their pensions and by higher and additional rate taxpayers.
“It’s worth remembering that the LTA was £1.5mn when it was first introduced in 2006 and went as high as £1.8mn at one stage so the gradual reduction meant it potentially affected more and more taxpayers and was having a major impact on the amount they were willing to contribute to their pensions,” Babtunde said.
“Abolishing the LTA simplifies some decisions around retirement and estate planning but also makes it more important that people seek independent advice on pensions due to the changes in tax treatment.”
The Office for National Statistics 2021 Wealth and Assets Survey revealed that the wealthiest 10 per cent hold around half of all wealth, primarily in the form of private pensions and property.
Recent HMRC data showed that 8,610 LTA charges worth £382mn were reported by pension schemes.
Simon Taylor, head of strategic partnerships at Investec Wealth, said the removal of the LTA will result in increased advice given in this area.
He said: “With the FCA’s retirement income advice review calling pensions advice into sharp focus, this whole area of advice will be in the spotlight for some time to come.”
sonia.rach@ft.com
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