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Partners face £200k hit on pension savings

Partners may need to save an extra £200k before retirement under expected pension allowance cuts 

29 November 2012

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UK-based partners may have to save at least an extra £200,000 before retiring if expected cuts to the pension annual allowance go ahead, a pension specialist has warned.

Roy Davidson, a manager at Dickinson Dees, calculates that, to compensate for a reduction from £50,000 to £30,000 in the annual pension allowance, higher earners will typically have to save at least an extra £200,000 from their gross income towards their retirement.

The widely-mooted reduction in the pension annual allowance has been predicted as a likely measure for the forthcoming autumn statement.

“If the current annual allowance is reduced, it’s not simply a matter of taking that money and investing it elsewhere – substantial extra amounts are needed because of the less favourable tax treatment received by other savings methods,” commented Davidson.

“It is worth noting that the annual allowance has already been recently reduced from £255,000 to £50,000. Many of the people affected will not be fully aware of its impact since tax returns for the first tax year of its impact do not need to be submitted until 31 January 2013.

“In other words, many people may not yet appreciate the impact the recent reduction has had on their finances, and could receive unwelcome large annual allowance tax charges in the spring of 2013.”

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