Pension lifetime allowance warning for clients with £500k already invested

Quilter is warning a pension of £500k has the possibility of falling foul of the pension lifetime allowance (LTA), given the way these asset pots benefit from investment growth and compound interest.

The UK-headquartered financial services group's latest number crunching has revealed that clients need to start worrying about the LTA when they have accumulated a pension pot of £500k and they are 15 years from retirement.

The value of the LTA has been dropping dramatically over the past decade and in the latest budget the UK chancellor froze it at its current rate until April 2026, meaning more people than ever will be facing tax.

Ian Browne, retirement planning expert at Quilter, said: "While a £1m in your pension pot sounds like a very large pot of money to many clients, advisers know that thanks to investment and compound interest that number can be easier to hit than people may think.

"Our calculations show that someone with a £500k or £600k pension pot and are 15 years from retirement will be forced to hand over some of their hard-earned cash to the taxman. This is assuming 5% net investment growth and doesn't take into account any personal or employer contributions which will substantially speed up growth.

"Reviewing clients pension funds in light of the chancellor's decision to freeze the Lifetime Allowance can make a real difference to a client's financial plan."

The LTA, which governs how much can be saved into a pension before tax charges apply, will remain at £1.073m until 2025/26.

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