Pension warning as Rishi Sunak to harvest £6billion from even ‘modest’ savers
Budget 2021: Sunak announces pension lifetime allowance freeze
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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.
Understandably, this is a worry for pension savers who are working hard to boost their pot as much as possible.
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As a result, individuals will want to keep an eye on their pension, and perhaps consider other savings options to use alongside it.
Resistance to the Lifetime Allowance is common, as some posit the tax as unfair.
Margaret Snowdon OBE, Pension Playpen All Star, recently told Express.co.uk: “The Lifetime Allowance has outlived its usefulness and should be dropped.
“It is contrary to Government messages to encourage greater pension saving and clashes with annual limits on the amount that can go into pension saving.
“It was originally aimed at very higher earners but its eroded level now captures modest savers too.
“It makes pension saving and planning more complicated than necessary.”
Express.co.uk readers also conveyed their dissatisfaction with the idea of a pension tax.
The user Sterling77a said: “Any Chancellor who attacks pensioners and pension funds is finished.
“He cannot balance the books at pensioners’ expense. That is the last thing he should do.”
Frances48 added: “You’re damned if you do and damned if you don’t. Sick of these politicians as they tell you in one breath to save and the next that they’ll tax you for it.”
While Narla stated: “As a Conservative, I will never vote Tory again if they take my pension savings.
“I invested in to make sure I wasn’t a burden on the system and so we could have a decent standard of living until we pass away.”
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Whereas some believed the tax was a necessity for those with larger pension pots.
User Get some wrote: “Do you think it’s fair that people with a pot worth more than £1million can also draw state pension and pay the same tax rate as you?”
While Easycrow remarked: “Do I need to cry for those who can afford to plough more into a pension? Give me a break!”
If a pension saver does exceed the Lifetime Allowance limit, they will need to pay the charge promptly.
Individuals should get a statement from their pension provider, laying out how much tax they owe.
This needs to be reported by filling in a Self Assessment tax return.
An HM Treasury spokesperson previously told Express.co.uk: “Maintaining the Lifetime Allowance at its current level allows savers to continue to make significant amounts of pension savings tax free.”
“Overall, 92 percent of individuals currently approaching retirement have a pension pot worth less than the lifetime allowance, so will not face a lifetime allowance charge, while the median pension pot for individuals approaching retirement is around £150,000.”
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