The pensions lifetime allowance will be frozen at just over £1m until April 2026, chancellor Rishi Sunak has announced, as part of a series of freezes announced today.
Delivering the 2021 Budget, Sunak said the LTA will stay at its current level of £1,073,100 until April 2026, instead of increasing in line with the consumer price index. Inheritance tax thresholds will also be frozen until that date, as will annual capital gains tax allowances.
Personal tax thresholds for both basic and higher-rate taxpayers will rise next year as previously planned, but will then also be frozen until 2026.
The lifetime allowance is a limit on the value of payouts from pension schemes – whether lump sums or retirement income – that can be made without triggering an extra tax charge.
In the run-up to the Budget, commentators had warned the move could push thousands of savers into paying 25 per cent tax on additional income drawn from their pots, as well as charges of 55 per cent if they draw down lump sums.
Some advisers, meanwhile, have previously called for the LTA to be scrapped entirely as it “unfairly penalises individuals”.
Speaking before the Budget, David Stevens, retirement director at LV=, said: “Although tax needs to be raised, past reductions have caused the lifetime allowance to become a very complicated tax that no longer only affects the very wealthy.
"Today, many people reaching 75 are finding it very confusing to understand whether their tax free cash will be taken in the form of a 25 per cent lifetime allowance charge.
"The chancellor would be better to scrap the lifetime allowance for defined contribution schemes, because it penalises good investment decisions and either implement a single annual allowance at a lower level or reduce the 20x factor for DB schemes."
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