Pension savers are set to lose out on billions of pounds through a hefty tax, as a key allowance on saving has been frozen. While pension saving can be useful for retirement, there are rules, such as the Lifetime Allowance, people will need to bear in mind. This allowance puts a limit on how much a person can save throughout their lifetime without facing tax charges. The Lifetime Allowance is currently £1,073,100, which may seem substantial to many. However, many could find themselves propelled over this sum due to the Chancellor’s decision to freeze the Lifetime Allowance for five years. The sum will remain at its current level until April 2026, after Rishi Sunak made the announcement in last year’s Budget. Analysis by Aegon has showed the extent of the issue which could be visited upon pension savers. It is thought a saver who withdraws cash in a lump sum will lose an extra £180,125 to the taxman by 2025. The figure represents the tax payable on the difference between the frozen lifetime allowance and the £1.4million had the sum been unfrozen. As incomes grow, and investments rise over time, Britons could inadvertently find themselves brushing up against the limit or exceeding it totally. As a result, individuals will want to keep an eye on their pension, and perhaps consider other savings options to use alongside it.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of May 2022 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.