Study finds 'worrying' levels of ignorance about pension allowance changes

In the poll of pension savers, two thirds of respondents (67%) said they didn’t know what the lifetime allowance is.
 
Among those who did understand how the allowance affects pensions, 14% said they didn’t know what the current level of the allowance is. However a large majority (83%) correctly identified the current lifetime allowance as £1.5 million.
 
But most striking of all was savers’ reluctance to take steps to lessen the potential impact of the lifetime allowance on their pension pot. More than three quarters (76%) said they were doing nothing to mitigate its effects.

John Fox, Managing Director of Liberty SIPP, comments:

“Many people who save hard into their pensions do so blissfully unaware of what the lifetime allowance is. And even among those who have heard of the lifetime allowance, there is a widespread perception that it’s a wealth tax that will never affect them.
 
“Sadly that’s a dangerously complacent view. The reduced lifetime allowance will no longer be just a tax on the rich. We recently crunched some numbers and found that many people in their thirties and forties with decent, if not huge, pension pots are likely to exceed the lifetime allowance of £1.25m without even making any further contributions, triggering a huge tax charge.1
 
“The reality is that many higher earners risk sleepwalking into a tax trap, as the reduction in the lifetime allowance will see thousands of Britons hit with an eyewatering 55% charge on any pension savings over £1.25m.
 
“Given that there’s a good chance that the lifetime allowance will be reduced even further in future, it is very worrying that so many people know so little about it, and are doing nothing to protect themselves from being caught in the widening tax net. Such ignorance is bliss only for the taxman."