Pension scheme members at risk of breaching lifetime and annual allowances should not adopt a default position of ceasing contributions according to mutual insurer Royal London.
The lifetime and annual allowances place limits on how much can be contributed and built up in a pension while still receiving tax relief. Both the annual and lifetime allowances have been reduced considerably in recent years which mean the number of people potentially affected has grown. While it is often seen as something only affecting high net worth investors, people with long term service in defined benefit schemes, such as teachers and doctors, are also often affected.
The common perception is that people should do all they can to avoid paying these charges. This can lead to some people choosing to leave their pension scheme or stop contributing to it to stop themselves breaching these allowances. However, there are instances where paying the charge is in the member’s best long term interests. For instance by opting out of a pension scheme a member could miss out on sizeable employer contributions that would boost their income in retirement.
The firm has produced a paper, Why paying a tax charge on your pension might not be a bad idea, highlighting the key areas scheme members need to consider before deciding whether to stay in or opt out of their scheme. As circumstances differ depending on the member it is suggested that independent financial advice is taken before making a decision.
Clare Moffat, head of business development at Royal London Intermediary, said: “It is important that people realise there is nothing inherently wrong in paying one of these charges. They aren’t a punishment for bad behaviour; they are simply the mechanisms HMRC uses to claw back any tax relief they have enjoyed which exceeds annual or lifetime limits. Those affected need to be made aware of the potential impact leaving a scheme might have on their long term retirement planning. They could miss out on employer contributions or find they lose valuable death benefits. This guide highlights the key issues people should discuss with their advisers to help them come to an informed decision on whether they are better off financially by being in or out of their scheme.”
For further information please contact:
Helen Morrissey, Corporate PR Specialist – Long Term Savings
- Email: firstname.lastname@example.org
- Tel: 0203 272 5433
- Mob: 07919 170 712
About Royal London:
Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.