Freezing the Lifetime Allowance penalises pension savers

We’re all eagerly awaiting the budget tomorrow, when Chancellor Rishi Sunak will outline how we plan to recover following the coronavirus pandemic.

PIMFA, (The Personal Investment Management & Financial Advice Association) the trade association for wealth management, investment services and the investment and financial advice industry, is disappointed by reports that the Chancellor is considering freezing the Lifetime Allowance for pension savers in next tomorrows Budget.

Simon Harrington, Senior Policy Adviser – pubic policy, at PIMFA, comments:

“We are concerned by reports that the Chancellor is considering freezing the Lifetime Allowance. Doing so penalises pension savers looking to secure their future and in the most extreme cases sees people left with no choice but to give up work. Freezing the lifetime allowance could see a number of people inadvertently exceed their allowance and, as we have seen previously with NHS workers, incur a 55% tax hit which they otherwise would not have to pay.

“One way around freezing the Lifetime Allowance, if the Chancellor goes ahead with it, may simply be for those at risk of exceeding their own allowance to make contributions to their spouse’s pension instead. This is particularlu useful if their spouse either makes much smaller, or no contributions to their own pension. This is also just one of many possible solutions those likely to exceed their pension Lifetime Allowance can explore. As a result, the Treasury may not collect as much in tax revenue as it might have initially hoped.

“Whilst we strongly believe that there should be focus on repairing public finances, we would urge any moves to not be at the expense of individual personal finances. Covid has shown how fragile the UK’s consumption driven economy can be. We need to become a more resilient and investment driven country. This cannot be achieved without the savers and investors that would be most hit by these changes.”

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