Sunak to freeze pension lifetime allowance

The Chancellor is expected to announce a freeze in the lifetime allowance at £1,073,100 for the rest of this Parliament, according to reports.

The Times has reported that Rishi Sunak is drawing up plans for a new “stealth tax” on wealthy pensioners, which could raise £250m a year by 2024, as he seeks to repair the UK’s finances after the pandemic.

The lifetime allowance is a limit on the amount of pension benefit that can be drawn from pension schemes, whether as lump sums or retirement income, and can be paid without triggering an extra tax charge.

Sunak is expected to make the announcements at the Budget next week.

Investment platform, AJ Bell, has suggested that the Chancellor’s decision to freeze the lifetime allowance would “drag thousands more people into his tax net”.

AJ Bell senior analyst, Tom Selby, commented: “The decision to scrap lifetime allowance inflation protection for the rest of this Parliament is likely less about the modest 0.5% rise in the lifetime allowance due to kick in from April this year, and more about rises in subsequent years.

“If we see a vaccine-inspired spending boom in the UK this summer, for example, inflation could be pushed northwards – and so too would the lifetime allowance under current legislation. By freezing the lifetime allowance as inflation spikes, the Chancellor will stealthily drag thousands more people into his tax net.

“Among those to be hit by this move will be NHS doctors who benefit from generous defined benefit pensions. Furthermore, the longer the lifetime allowance is kept at its current level, the more of middle Britain will be dragged into its orbit.

“If the Chancellor does freeze the lifetime allowance at the Budget, savers will be looking for clarity on when the inflation link will be returned so they can continue to save for the future with confidence.”

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