This requires £26,660 a year from private pension savings to supplement the state pension and a 65-year-old would need £958,477 to buy an inflation-linked annuity that produced that sum, according to Money Helper, a government service.
Simon Bull, 51, from Kent, said he was concerned his £1m pension would not be enough to cover the cost of living in a care home as well as retirement.
“The allowance is not a huge amount. A lifetime of prudence is penalised by excessive taxation that removes part of my pension and then denies me the ability to provide for my own care. I should have not bothered and just relied on the state to look after me,” he said.
Jon Greer of Quilter, a wealth manager, said people had “dangerously” underestimated how much they would need to pay for care because of the Government’s misleading cap on costs.
“Many believe they will pay only £86,000 and no more with the new cap in place. However, this is far from the case as people can very quickly find themselves paying up to £200,000 before the state steps in,” he said. The new lifetime cap applies only to “personal care” and does not cover food and accommodation for care home residents, the so-called “hotel costs”.
Astronomical fees have meant many will have to breach the lifetime allowance if they are at risk of going into a home, he said. This newspaper is campaigning for the limit to be unfrozen and rise with inflation – as had been the case before the Chancellor froze it in September 2021.
His decision will drag an additional 400,000 savers into high tax territory. Any savings above the threshold are taxed at 55pc if the money is withdrawn as a lump sum. Cash taken as income is taxed at 25pc plus income tax.
Richard Harwood of Brewin Dolphin, a wealth manager, said the Government was “cynically grabbing” what it could and the current allowance bore no relation to what pension savers realistically needed.
“It is far too low and risks dissuading people from saving as much as they can for later life,” he added.
The allowance was designed to hit the 5,000 wealthiest savers in Britain. However, it will now snare more than 1.6 million pensioners. It has been successively reduced by Conservative governments from £1.8m in 2012.