Forthcoming changes to the taxation of pension savings could cost you dearly if you are amassing contributions through either a Defined Benefit or a Defined contribution scheme.
We all know people are working longer and retiring later but in contrast the lifetime allowance for pensions is decreasing. These factors contribute to concerns that more and more people will be growing their pension pots in excess of the allowance limit.
But what does this actually mean? Well, savers will pay tax on any excess savings above the Lifetime Allowance Limit (LTA). The rate of tax depends on how savers receive the excess. If it is in the form of a lump sum, then the rate of tax is an eye-watering 55 percent. If it is in the form of a regular pension, the excess is taxed at 25 percent.