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One million pension savers face devastating 55pc tax trap
The lifetime allowance freeze is a penalty on those who invest wisely, industry experts warn
The pensions lifetime allowance will be frozen for the next five years
Credit: TMG
Huge numbers of pension savers will be hit with higher tax bills after falling victim to the Treasury’s post-pandemic tax raid.
The pensions “lifetime allowance” will be frozen for the next five years at its current level – £1,073,100. The real-terms cut will limit how much savers can put into their retirement pot tax-free. This threshold had previously increased with inflation.
Diligent savers will face punitive bills as a result, being hit with a 55pc tax charge if they withdraw anything above the limit as a lump sum. If taken as income, it will be charged at 25pc. For example, those who are £10,000 over the lifetime allowance, and take that money in one go, will be taxed £5,500 and will be left with just £4,500.
Budget 2021: Pensions lifetime allowance frozen for five years
Workers across the country have been scrambling to bolster their finances as the pandemic and three national lockdowns have drained savings. (Getty Images)
The pensions lifetime allowance will be frozen at its existing level until April 2026, in a move that effectively decreases its value when inflation is taken into account.
The Chancellor today said the lifetime allowance would remain at its current £1,073,100 for the next five years, rather than increasing in line with inflation.
The move will raise around £1bn between now and the 2025/26 tax year, and if CPI were to rise in line with official OBR forecasts, it would imply that without the policy, the lifetime allowance could increase by around £85,000 by 2025/26.
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