By Daniel Hunter

The widely mooted reduction in the pension Annual Allowance (predicted in the media as a likely measure for the forthcoming Autumn Statement) will dramatically reduce the value of the pension funds, if implemented, warns leading wealth manager at law firm, Dickinson Dees.

Roy Davidson, a pension specialist at Dickinson Dees, calculates that to compensate for a reduction of £50,000 to £30,000 in the annual pension allowance, a typical higher earner (such as a company director, successful business owner, newspaper editor, or senior civil servant) will have to save at least an extra £200,000 from their gross income towards their retirement.

A Chartered Financial Planner and a Fellow of the Pensions Management Institute, Davidson said: “Pensions are a very efficient and much needed way of ensuring people can enjoy retirement comfortably. If the current Annual Allowance is reduced, it’s not simply a matter of taking that money and investing it elsewhere — substantial extra amounts are needed because of the less favourable tax treatment received by other savings methods.

“Overall, reducing the pension Annual Allowance further will affect many more people than the hotly debated ‘mansion tax’ and further erodes the ability of successful people who have worked hard, to invest so they can also enjoy their retirement.”

Roy added: “It is worth noting that the Annual Allowance has already been recently reduced from £255,000 to £50,000. Many of the people affected will not be fully aware of its impact since tax returns for the first tax year of its impact do not need to be submitted until 31 January 2013. In other words, many people may not yet appreciate the impact the recent reduction has had on their finances, and could receive unwelcome large Annual Allowance tax charges in the spring of 2013.”

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