How to retire early while paying as little tax as possible? This is the conundrum that Richard Clarke* is currently pondering.

Mr Clarke, a 54-year-old customer service director from Brighton, has saved diligently for his private pension and has accumulated around £1.4m in pension funds.

He aims to earn around £55,000 a year when he stops working and hopes to have more time for traveling and marathon running. “I’ve been everywhere – Tokyo, Chicago, New York, Boston, Amsterdam, Berlin, Valencia – and I hope I can do a lot more,” he said.

However, he exceeded the lifetime limit on pension contributions, known as “lifetime maintenance”and any money received above the £1.07m cap is heavily taxed at rates of up to 55 per cent.

The limit has fallen from £1.8m in 2012 and has remained frozen for the past three years, trapping hundreds of thousands of savers in an expensive tax trap. Thousands more will be caught out in the coming years as the cap remains frozen until 2026, when the value of pension funds is likely to rise.

“I was given the opportunity to transfer my pension from my old last salary to a self-managed bank and the payout was very generous. That’s what pushed me over the edge,” said Mr. Clark, who asked not to use a pseudonym.

Now he needs to know if he can achieve his goal of retiring in four years at age 58 or earlier, while avoiding heavy taxes as much as possible.

Mr Clarke, who has three grown-up children, also owns a five-bedroom detached house worth around £1m with an outstanding loan of £270,000 and has £90,000 of Isa investments and £10,000 in cash, so he fears that he too may be subject to inheritance tax.

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