With a significant proportion of the UK population facing a shortfall in retirement income, the government has used tax breaks to encourage long-term pension saving. However, those saving too much could face a potential tax charge of up to 55% if their fund value breaches an upper limit, known as the pensions Lifetime Allowance (LTA).
Under the current rules, which remained largely untouched by today's Budget, savers are allowed to make an annual pension contribution of 100% of their income, capped at £40,000 per person per year. Those that have followed the advice and made large, regular contributions to their pensions could fall foul of the LTA should they save more than £1m in their pension pot.