The Government tops up pensions as an incentive to save for old age
There are annual and lifetime limits and if you go over them HMRC will claw back some of your savings
HMRC has reported a rise in the number of people who get caught out
Meanwhile, the Chancellor is reportedly mulling a raid on pension tax breaks to help pay the massive bill for fighting Covid-19.
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In the spring budget, the Government froze the Lifetime Allowance on pensions until the 2025/26 tax year. As many pension savers may not be aware of what the Lifetime Allowance is and whether it will impact their retirement savings, here we’ve looked at who the Lifetime Allowance will impact and how pension savers can lock into a higher amount.
What is the Lifetime Allowance?
The Lifetime Allowance is a maximum amount that can be saved into a pension over a lifetime without incurring a tax liability. The current limit is £1,073,100 and during the budget, the Government said that this amount would be frozen for five years. Prior to the freeze, the Lifetime Allowance was expected to rise each tax year at the rate of inflation. Although even at its frozen limit the majority of pension savers will unlikely have to worry about paying tax on savings above the Lifetime Allowance, the rising rate of inflation, as well as the possibility of high investment growth in the next