“A pension penalty tax keeps me from paying for my own care”

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This requires £26,660 a year from private pension savings to top up the state pension, and a 65-year-old would need £958,477 to buy an inflation-linked pension that generates that amount, according to Money Helper, a government service.

Simon Bull, 51, from Kent, said he was concerned his £1million pension would not be enough to cover living costs in a care home as well as retirement.

“The allowance is not a large sum. A lifetime of prudence is punished by excessive taxation that forfeits part of my pension and then denies me the ability to provide for myself. I shouldn’t have bothered and just trusted the state to take care of me,” he said.

Quilter’s Jon Greer, a wealth manager, said people had “dangerously” underestimated how much they would have to pay for care because of the government’s misleading cost cap.

“Many believe that with the new cap they will only pay £86,000 and no more. However, that is far from the case as people can pay up to £200,000 very quickly before the state intervenes,” he said. The new lifetime cap only applies to “personal hygiene” and does not include food and lodging for nursing home residents, known as “hotel expenses”.

Astronomical fees have meant many have to break the lifetime allowance if they risk going into a home, he said. This newspaper is campaigning for the limit to be lifted and rise with inflation – as was the case before the chancellor froze it in September 2021.

His decision will draw another 400,000 savers to high-tax jurisdictions. Any savings above the threshold are taxed at 55 percent if the money is withdrawn as a lump sum. Cash taken as income is taxed at 25 percent plus income tax.

Brewin Dolphin’s Richard Harwood, an asset manager, said the government is “cynically attacking” what it can and the current allowance is disproportionate to what pension savers realistically need.

“It’s way too low and could discourage people from saving as much as possible for later life,” he added.

The allowance should hit the 5,000 richest savers in the UK. However, it will now catch more than 1.6 million retirees. It has been successively reduced by Conservative governments from £1.8m in 2012.

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