UK Budget: Sunak freezes lifetime allowance for pensions contributions

By Jenna Brown, Christopher Copper-Ind

Britain’s finance minister, Rishi Sunak, has frozen the lifetime allowance (LTA) for pension contributions at just over £1m for the remainder of this Parliament, and will be keeping IHT at the current level for a further five years.

Read also UK. Women retirees win £2.7bn for underpaid pensions

The Chancellor said the LTA would remain at its current level of £1,073,100 for 2020/21 rather than increasing in line with inflation. It had been expected to rise by £5,800 in 2021/22, in line with 0.5% Consumer Prices Index.

Read also South Africa proposes easing infrastructure limits for retirement plans

The IHT threshold will also be held at current levels until April 2026.

Incredibly, the current nil rate band for inheritance tax (of £325,000) came into force from 6 April 2009 and hasn’t been increased since.”

Read also UK. Pension risk settlements reached record high of over £54bn in 2020

In a widely predicted move – it was leaked last week – the freeze is estimated to net the Treasury an additional £250m in tax.

If the lifetime allowance rose alongside inflation it would increase by a further £88,900 by the end of the current parliament.

It is thought medium to high earners in the public sector – who are building up significant defined benefit (DB) pensions – would be badly affected by the change.

The LTA is £1,073,100 for defined contribution pensions. The LTA in DB schemes is an annual pension amount of one twentieth of the ‘cash’ limit, or £53,655 a year.

Read more @International Investment

291 views