Lifetime allowance freeze – It gets worse with age

by | Mar 3, 2021

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The maximum pensions savings that one can accrue is frozen at £1,073,100 until April 2026. Appearing uncontroversial today, the effects will grow over time.


What do the experts think of the Lifetime Allowance Freeze?


Senior analyst at Hargreaves Lansdown, Nathan Long calls the measure, “an under the radar revenue raiser.” Today, Long elaborates, it looks like a tax raid on the higher paid public sector employees with generous defined benefit pensions. But in the long term, “this will essentially end up being a tax on those that are successful in growing their pensions.”

Tom Selby, Analyst at AJ Bell, also mentions, the “swathes of middle England Brits” that will get caught up with charges, highlighting doctors and consultants in the NHS.

Selby also raised the spectre of inflation. If CPI were to rise in line with official OBR forecasts, it would imply an increase in the lifetime allowance of around £85,000 by 2025/26. Selby estimates this lifetime allowance freeze will bring in £1bn in revenue for the Treasury over the next five years.


Claire Trott, Head of Pensions Strategy at St. James’s Place, echoes Long’s sentiment, saying, “Fixing the pensions lifetime allowance until 2026 will envelope more people into the tax charges and so it’s effectively a tax on good investment decisions.”

But Trott goes further saying the freeze not only impact lifetime benefits, but also for those with uncrystallised funds on death, with beneficiaries paying any excess charges from the funds left to them.

Andy Springford, Financial Planning Partner at Mazars, stressed the importance of individuals knowing exactly where all of their pension arrangements sit today, “so as not to walk unwittingly into avoidable tax charges.”


Highlighting the positive Springfeild said, “Tax relief on pension contributions has not changed, with the Annual Allowance remaining at £40,000 for individuals with incomes below £240,000.”

Dave Downie, Technical Manager at Standard Life, said, “it is important to remember that the LTA isn’t a ceiling on what can be saved into pensions.  There are many good reasons for those potentially impacted to continue saving into their pension especially if stopping funding means losing out contributions from their employer.”

Mark Pemberthy, Head of DC & Wealth at Buck, noted this latest freeze highlights the complicated history of the lifetime allowance. Originally introduced in 2006, Lifetime Allowance was an attempt at pension simplification.


Pemberthy continues, “The allowance was introduced at £1.6m and climbed to £1.8m in 2012 before being regularly reduced since then. If it had increased in line with inflation since 2012 it would be around £2.18m, almost double what it stands at today.”

Claire Trott concluded, “While the Lifetime Allowance is an allowance, and the charge is designed to recoup tax relief given and not to have an overall negative impact on savings, it does hit savers.

While Nathan Long said, “A lifetime limit on the amount you can hold in pensions is of questionable value given we’re also limited as to what we can pay in each month. Rather than tinkering with the system to raise more cash, the government needs to look more holistically at tax on pensions and how to make it work better for everyone.”


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