Overseas retirement dreamers caught up in pensions tax grab

If you’re working and saving hard in the hope of retiring in upscale comfort overseas, you may be in for a very unpleasant shock via the UK taxman.

More than a million workers are now at risk of falling foul of the ‘pensions lifetime allowance’ limit of £1.03 million, with another 1.3 million of those coming up to retirement in the not-too-distant future heading the same way. Currently, pensioners who’ve accumulated more than the allowed total are charged 55 per cent of the pension on any amount exceeding the limit. Those most affected are working as high-level public servants in the teaching, local council, civil service, medical and police sectors, but private sector employees with generous pay structures are also affected if they are earning between £60,000 and £900 annually.

Changes to the allowance are expected to hit both public and private sector professionals planning their more-than comfortable retirements overseas. By this time, some 250,000 pension savers have already accumulated amounts over the limit, with many still contributing, thus making the situation worse year by year. Those in this dilemma are about to get unpleasant shocks caused by a huge tax bill once they actually retire and begin drawing their pension.

The main reason for this effect on so many pension savers is the annual government redefining of the limit in line with inflation as measured by the consumer price index. On average, wages grow faster than does inflation, meaning investments in pension pots are likely to beat inflation figures over the years. Experts believe literally hundreds of thousands of pension savers will be caught in this tax trap, without even thinking of themselves as wealthy.

The concept of the lifetime allowance has regularly raised controversy since its 2006 introduction by Gordon Brown, the then Chancellor of the Exchequer. The limit was £1.8 million but, beginning in 2010, it was regularly reduced to the present rate of £1.03 million in 2016.