Budget 2021: Sunak announces pension lifetime allowance freeze
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Pension saving can be beneficial, but comes with a whole host of rules to consider. One of these is the Lifetime Allowance (LTA) which limits how much a person can save during their lifetime.
At present the limit is set at £1,073,100, which seems like a significant amount.
But accelerating savings towards retirement could mean people exceed the limit, and have to pay a 55 percent tax as a result.
Recent research has shown the tax collected from those who breached the LTA has increase by 1068 percent in the past decade.
This conclusion was reached by analysis of HMRC data undertaken by the firm Mazars.
HMRC collected £32million from people exceeding the lifetime allowance in the 2010/11 tax year.
However, by the tax year ending 2019/20, this reached a staggering £342million.
With more individuals caught out by the tax, there are increasing fears given a recent decision made by the Chancellor Rishi Sunak.
Mr Sunak, under the leadership of Prime Minister Boris Johnson, announced a freeze to the Lifetime Allowance.
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It means the limit will remain the same until 2025/26.
However, inflationary pressures have worried savers who may find themselves propelled over the line and subject to a hefty tax.
This sentiment was reflected by Ian Pickford, partner at Mazars, who recently said: “Thousands of people have been dragged into paying additional tax on their pension savings in the last decade.
“With the Lifetime Allowance threshold on ice until 2026, this upward trend won’t slow down, hitting both defined benefit and defined contribution pension savers, especially those with generous pension perks.
“It’s closer than many people think.”
Others have described the freeze as a way for the Government to implement tax by stealth.
Henry Tapper, Chair of AgeWage and non-executive chair of Pension Playpen told Express.co.uk: “This is a stealth tax on pensions which cannot be justified.
“The LTA is now kicking in not just for the pension super-rich but for those who had hoped to retire on average incomes.
“After the taking of tax free cash, someone at the LTA drawing just four percent of their fund per annum – would be receiving an income of only £30,000.”
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An HM Treasury spokesperson previously told Express.co.uk: “Maintaining the Lifetime Allowance at its current level allows savers to continue to make significant amounts of pension savings tax-free.”
“Overall, 92 percent of individuals currently approaching retirement have a pension pot worth less than the lifetime allowance.
“They will not face a Lifetime Allowance charge, while the median pension pot for individuals approaching retirement is around £150,000.”
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