The recently released proposals to simplify pensions have yet again come under fire.
The proposed 'lifetime limit' of £1.4m is the maximum a person will be able to build up in a pension fund at retirement. This figure is then linked to the increase in the Retail Prices Index.
One company that has criticised the proposal is Norwich Union. It says that linking the value of a person's pension fund to an amount at retirement, rather than contributions is nonsense. They believe people who receive good investment performance, which takes them above this lifetime limit, will be penalised by tax charges.
The National Association of Pension Funds is also calling for the lifetime limit to be scrapped. The Association of Consulting Actuaries believes that if the limit stays it should be set at at least £1.7m and be linked to wage increases, not the Retail Prices Index.
Our View:
Many people think this limit will not affect them, should the proposals be implemented. The Inland Revenue estimated that around 5,000 could be worse off, with the rest better off.
However, other figures released show that around 290,000 people could be penalised. It is our belief that until the new proposals are implemented, any pension built up until that date will be ignored. This means you can build up additional pension benefits.