Fears over pension tax timebomb: HMRC not keeping records of how much lifetime allowance savers use
More than one million retirees could be oblivious to a looming tax bill because the Government is not keeping track of their pension pay.
HM Revenue and Customs has admitted it does not keep a record of how much of the lifetime allowance (LTA) pensioners have used up. Instead it is relying on pensioners and providers to keep count.
The allowance lets you save up pensions worth a total £1.055million with the benefit of tax relief. Once you exceed the limit, HMRC will start to claw back the tax relief.
HMRC has admitted it does not keep a record of how much of the lifetime allowance pensioners have used up. Instead it is relying on pensioners and providers to keep count
Any withdrawals over the cap will be taxed, in addition to income tax, at either 55 per cent if the excess is taken as a lump sum, or 25 per cent if it is taken as income.
Around 4,500 people faced LTA charges in the past financial year, but insurer Royal London estimates as many as 1.25 million people are on course to exceed the allowance.
Your pension provider should let you know how much of the allowance you have used as a percentage in annual statements.
Steve Webb, head of policy at insurer Royal London, says: ‘Most people would imagine that in this digital age, HMRC would keep records of all the pensions we take and would tell us if we go over the lifetime limit. But it turns out HMRC are relying on us to do that job.’
An HMRC spokesman says: ‘The majority of pensions will never result in a LTA charge.
‘Therefore there is not a requirement for members and scheme administrators to report the amount of the LTA that has been used up.’