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Budget 2021 tax measures to support Covid recovery
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Pension allowances caught in fiscal freeze

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Pensions lifetime allowance is frozen, which will hit some pension savers. More changes are expected in the future for pension fund investment rules.  

3rd Mar 2021
Tax writer
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No changes

For the first time since 2004, no changes have been made to private pensions taxation. Despite widespread rumours that the Lifetime Allowance (LTA) would be cut from its current level of £1,073,100, the Chancellor has confirmed that it will remain unaltered until April 2026.

This will serve as particularly welcome news to the medical profession in times of Covid.

In 2019/20, many senior consultants were considering either opting out of overtime on activities falling within the NHS pension scheme, or leaving the NHS altogether, due to the threat of substantial tax charges arising from reductions in the pensions Annual Allowance. There was concern that rumoured reductions to the LTA would impose similar pressures, at a time when the NHS needs ever greater involvement from its staff.

Simon Harrington, Senior Public Policy Adviser at PIMFA, comments: 

“We are dumbfounded that the Chancellor has frozen the Pension Lifetime Allowance until 2026. 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.

Pension fees

On the broader pensions front, consultation will take place in April to explore whether the existing regulations on pension providers’ charging provisions may be hindering pension schemes’ ability to invest in a wider range of assets.

At present, there is an overall “charge cap” of 0.75% on employer pension schemes, and the fees on certain types of investment (especially where those fees are “front loaded”) can render those investments inaccessible to scheme trustees.

The DWP will publish draft regulations allowing some fees to be smoothed out over a multi-year period.

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