UK - A quarter of a million UK executives would likely be adversely affected by the A-Day pension changes coming into effect in April, said Bruce Moss, principal at Tillinghast, a division of Towers Perrin.
Moss said the majority of executives were “entirely unaware” they face large tax bills on their pensions when they retire. “Executives have their own pensions crisis, although I suspect that few will shed many tears for them,” he said.
Even those that do not think they have a problem could be wrong as they might have tested their position using simple compound interest projections, he added.
“On this basis an executive aged 40 with a pension currently worth £300 000 and paying £1000 a month would not appear to have a problem if he or she earns an annual return of 7%. However if a “stochastic” projection is done and the executive seeks to invest heavily in equities to earn a high return, he or she has a 35% chance of exceeding the Lifetime Allowance and an expected tax bill of £82,000 on retirement at 60,” he said.
The problem is that many more executives are potentially affected than they might realise. Deterministic projections give a black or white answer, said Moss, “you are either affected or you are not and worse still take no account of how the pension fund is invested”.
By using stochastic projections the problem can be recognised and measures can be taken to reduce the chances of exceeding the Lifetime Allowance and having to pay a large tax bill, he said.
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