Pension: How Lifetime Allowance may impact you as Rishi Sunak ‘plans tax raid’ | Personal Finance | Finance

Pension reforms are always anticipated by experts, particularly near to major fiscal events such as the Budget. Before the Chancellor Rishi Sunak’s Budget this year, many Britons were looking at their pension pots, taking action to ensure they were not affected by rumoured changes. Ultimately, Mr Sunak announced a freeze to the Pension Lifetime Allowance at its current level of £1,073,100, until April 2026.

However, with the so-called ‘Freedom Day’ now pushed back, and variants of COVID-19 spreading, there are concerns about the financial future for the UK.

After a challenging year and a half, reports from The Telegraph have suggested Treasury officials are looking at a “pension tax raid”. 

According to sources from Whitehall, the measure is being considered due to pressure on the public purse after the pandemic.

A number of different methods have bene discussed with regards to potential pension changes in the future.

READ MORE: Savings: Britons urged to give cash a ‘boost’ as many ‘lose money’

As pensions increase in value over time due to compounding, people may find themselves drawing particularly close to the threshold, and even tipping over it.

This could have a particular impact on a person’s retirement cash, and thus their plans for later life. 

Speaking previously to Express.co.uk, Christine Ross, Head of Private Office (North) at Handlesbanken Wealth Management, commented on what a Pension Lifetime Allowance changes could mean.

She said: “More and more people are going to get near to the Lifetime Allowance in the next few years, perhaps even without realising it. 

“It’s important to note we aren’t just talking about extraordinarily high earners, here, we’re talking about people who have spent time in upper-middle management.”

Ms Ross highlighted career pathways such as headteachers, deputy headteachers, heads of department, and other white collar professionals who may be impacted.

Indeed, those who have defined benefit pension arrangements, which are usually based on years of service and salary may also be impacted. 

She added: “The Lifetime Allowance is frozen at £1,073,100, which may seem like an odd number, and that is going to be frozen for the next five years.

“If that had been increased with inflation, that allowance would’ve risen by £88,900 if we took a view for inflation over the next five years.

“Now, let’s say somebody is right on the Lifetime Allowance and their investments continued to grow at the same level – effectively they will pay 55 percent tax on £88,900. That is the impact on somebody of the Lifetime Allowance being frozen.”

Steven Cameron, pensions director at Aegon, added: “Today’s speculation highlighted the possibility of a further cut to the pensions lifetime allowance.

“Given this was frozen at the recent Budget any further change would be particularly punitive. The current allowance only buys an annual guaranteed income of around £1,700 a month, which is hardly going to buy a life of luxury.”

Express.co.uk has contacted the Treasury for comment on the matter. 





Source link