Spring Budget 2021: changes to lifetime pension allowance

With the Covid-19 pandemic affecting personal finances, 2020/21 has been a tough financial year for many. Lots of people in the UK are now paying extra attention to their finances and thinking seriously about their financial future.

With this in mind, many of us had been eagerly awaiting the UK Government’s Spring Budget, hoping to see what direction Chancellor of the Exchequer Rishi Sunak would be sailing the country’s finances over the coming months and years. From a retirement planning perspective, there was one stand-out feature of the budget affecting savers – the announcement of the government’s position on the lifetime allowance.

The lifetime allowance was expected to rise in line with inflation from April 2021. This would have seen the lifetime allowance rise by around £5,800. However, the Chancellor instead announced that there would be a freeze on the limit until April 2026, meaning the lifetime allowance will now stay at its current level of £1,073,100 for the next five years.

The lifetime allowance applies to the total value of tax-privileged benefits an individual can draw from their pension schemes, including safeguarded benefits.

The value of any authorised benefits paid out in excess of an individual’s lifetime allowance is subject to a tax charge known as the lifetime allowance charge. This applies to all types of registered pension schemes equally.

How much an individual is charged will depend on whether they receive benefits from their pension as a lump sum (55% charge) or drawn down as income (25% charge).

For further information on the lifetime allowance, you can visit the Money Advice Service here.

Disclaimer

The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

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