Almost half of pension holders who are over or near their lifetime allowance (LTA) threshold have not yet taken any action to prepare for the limit reductions due to be introduced in April, a survey has found.
Independent advisory group deVere, which carried out the survey, said its results are a warning that British retirees risk being hit with hefty additional tax burdens when the lifetime allowance for pensions drops from £1.5m to £1.25m in April.
In there poll, 46% of pension holders have not yet taken action of any kind to mitigate the effects of the reduction.
The firm warned that even if a pension pot is significantly below £1.25m today, it is "perfectly possible" for savers in their 30s and 40s now to accumulate pensions savings of £1.25m by the time they retire. They could then be hit with up 55% in tax.
deVere Group founder and chief executive Nigel Green said: “It’s astonishing that such a high number of savers, most of whom have worked hard all their lives to be able to enjoy the retirement they want, are putting themselves at risk of being hit with a tax of up to 55%.
“Perhaps one of the reasons for this lack of action is that many people believe that the LTA changes will not affect them. The truth is that it will affect many more hard-working savers than might be expected. Many will reach the threshold sooner than they think as values of portfolios increase."
Ways to avoid falling into the tax trap, Green suggested, included applying to HMRC for ‘Fixed Protection 2014' before 5th April or transfering the pension into a HMRC-recognised Qualifying Recognised Overseas Pension Scheme (QROPS).
deVere Group reported a 35% increase in the number of expat clients enquiring about transferring pensions into a QROPS in January 2014, compared to the previous month.
But consultant Broadstone warned in January that advisers should not overreact to the changes to LTA.
It said leaving defined benefit pension schemes should be the absolute last resort as it feared scheme members may not be adequately compensated for leaving pension schemes in light of the significant savings gained by the employer.
The lifetime allowance, the amount that can be saved tax-free in a pension, was first introduced in 2006 and was set at £1.5m.
By 2010-11 it had been increased to £1.8m. However, it was cut back again to £1.5m in 2012 and the further reduction - to £1.25m - will come into effect on 6th April 2014.
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