The average worker is on track to exceed the current Lifetime Allowance of £1,073,100 by the typical retirement age of 64-65, new modelling from PensionBee has shown.

PensionBee noted that many workers with varying salaries may be unaware of how much they have saved with the aid of auto-enrolment and could be at risk of triggering tax penalties of up to 55 per cent on pension withdrawals by breaching the Lifetime Allowance.

The youngest, highest earning workers of today are most at risk of hitting the Lifetime Allowance threshold early, with PensionBee stating that the top 10 per cent of 18-21 year old earners could exceed the current allowance at the age of 57-58, seven years before typical retirement age.

Even 18-21 year old workers with an average salary for their age group of £12,275 could be likely to reach the threshold at the same time as the typical retirement age of 64-65, with an expected pension pit of £777,489 by the age of 60, according to PensionBee.

The modelling found that even those who begin contributing to their pension at age 22 could face the same risks, as the top 10 per cent of 22-29 year old earners with an average salary of £40,000 are predicted to surpass the threshold 6 years before retirement at age 58-59.

While 22-29 year olds with an average salary of £25,997 are not expected to breach the Lifetime Allowance until the ages of 66-67, they could still be likely to trigger tax penalties due to many savers tending to hold off making withdrawals immediately and continuing to contribute into their pension beyond the typical retirement age.

PensionBee CEO, Romi Savova: “While there are already sensible limits on how much an individual can pay into their pension each year, the current Lifetime Allowance limit punishes those who have saved diligently throughout their working life and contradicts the government’s message that everyone should be saving for retirement.

“A much more reasonable measure would be to eliminate the Lifetime Allowance and instead focus on the current Annual Allowance, where we see far less people contributing up to the threshold as a whole.

“As life expectancies increase, many workers will continue to contribute into their pension far beyond their working lives, so I would encourage all savers to keep a close eye on their contributions to avoid being penalised, while ensuring that they are saving enough to be able to enjoy a comfortable retirement.”

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