Thousands of high income earners are fleeing the pension system as the government hints at scrapping tax breaks for the wealthy.
Leaks about high-level discussions in the coalition to stop 50% tax relief on pension contributions while trimming annual allowances are well-placed to let anyone affected take action to put their retirement savings in order before the financial year ends in April.
Meanwhile, slashing pension relief for top earners will plug an expensive tax hole that leaks cash for the government.
If the change is announced in the Budget on March 21, the cost in potential relief to top rate taxpayers is at least £25,000 a year.
HM Revenue and Customs is dealing with 70,000 applications from high earners for fixed protection – which effectively excludes them from pension saving as they cannot make any further contributions from the start of the next financial year.
The deadline to apply for fixed protection is April 5, which secures a lifetime allowance of £1.8 million.
Making the application could set up a one-off £250,000 contribution with 50% relief by pooling allowances over five years – including three year’s back, the current year and possibly the next financial year, depending on input periods.
Pension expert Adrian Walker, of Skandia, said: “It is interesting the high numbers who have already applied for fixed protection, as it is still early February. We normally expect to see a spike in these sorts of applications as tax year end approaches. The latest rumours surrounding the allowances are bound to have an affect and change people’s behaviour.
“People are urged to act now, as the new reduced pension allowances could come into force from Budget Day on March 21, not tax year end on April 5. If people have built up large sums of money, then applying for fixed protection will offer further tax advantages on their existing savings.”