Budget 2021: The pensions lifetime allowance (LTA) limit will be frozen for five years, Chancellor of the Exchequer Rishi Sunak confirmed in his Budget 2021 speech.
Under the plans, LTA will be held at its current level of £1,073,100 until April 2026.
The measure is one of a number designed to freeze tax thresholds as the Government attempts to help the economy recover from the impact of the Covid-19 (Coronavirus) pandemic, but the announcement has sparked concern among industry experts.
Chris Noon, partner at Hymans Robertson, described the move as a “kneejerk reaction” for “short-term financial gain coming “three years after the government committed to increase it in line with inflation.”
“It is bitterly disappointing to see him renege on this promise so soon and viewing those impacted by this change in pensions tax policy as necessary collateral damage,” he said. “We remain worried that the Treasury has far too short a memory; it has spent years tinkering at the edges of pension taxation policy and should have learned that decisions such as this can lead to damaging unintended consequences.
“Back in 2016 another kneejerk introduction was the tapered annual allowance which eventually led to senior doctors, among other affected groups, refusing to do additional shifts. These 2020 pandemic heroes are likely to be massively impacted by this freeze. This hasty move to reap short-term financial benefit for the government could be detrimental for those who we valued most during Coronavirus.”
Claire Carey, partner, at law firm Sackers said the lifetime allowance, since 2012, had been “reduced on successive occasions”, finally bottoming out at £1 million in 2016.
“This is all a far cry from the LTA’s once lofty heights of £1.8 million,” she added. “It may also come as a blow to pensions savers whose benefit and retirement planning has been pitched towards the LTA continuing to uprate in line with inflation.”