Those with the largest pension pots will be affected by the recently announced lifetime allowance freeze, according to the Treasury.

The lifetime allowance limits the amount of pension benefits that can be withdrawn from your pensions before incurring tax charges of up to 55%. It was announced in last month’s Budget that it will be frozen for five years.

It usually rises in line with the Consumer Prices Index (CPI) rate of inflation from the previous September, in which case a 0.5% rise was anticipated for 2021/22.

But, in order to try and claw back the huge amounts of money spent protecting the UK economy during the coronavirus pandemic, this link to CPI has been removed up to and including the 2025/26 tax year.

In doing so, the Treasury expects to recoup around £800 million by the end of the five years, starting with £80m this year and rising to £300m in 2025/26.

However, those affected by this measure could be savers with pension wealth close to the limit when they are approaching retirement and those with pension wealth over this limit when they retire.

These individuals may well have been expecting the lifetime allowance to continue to increase as the CPI increases, which would influence their pension savings behaviour.

Nigel Peaple, Director of Policy at the Pensions and Lifetime Savings Association, said:

“The freeze will affect about 10% of savers, not all of them wealthy, but usually those on higher salaries with a lot of pension savings.

“Employers should encourage their staff to check the size of their pension pot and, if close to £1m, consider seeking financial advice.”

We can help

For advice on your pension and whether you will be affected by the lifetime allowance freeze, call one of our advisers today on 01483 205890.