As had been reported the Lifetime Allowance (LTA) for pension savings was frozen at £1,073,100. Similarly the Annual Allowance (AA rules) and the rules on pension tax relief have remained unchanged for 2021/22.
What did the Chancellor say?
The chancellor announced that the LTA limits will be frozen until the 2026/27 tax year as opposed to the planned increases in CPI years on year since the 2018/19 tax year. Based on the CPI rules this would only have been a mere 0.5% increase .
Whilst nothing was announced for the AA or tax relief rules, this means that the current rules should be in place for the 2021/22 tax year. For the AA this means that the Standard AA will be £40,000, the Tapered AA between £4,000 and £40,000 and the Money Purchase AA will be £4,000.
This will take effect for the 2021/22 tax year.
What does this mean for the planner?
While the freeze to the Lifetime Allowance is far from ideal for pension savers it’s worth bearing in mind that this is a level which many will not achieve. For those fortunate enough to be in a position to exceed the LTA it’s important to be pragmatic, as they will still get a percentage of the benefits above it.
Knee jerk reactions are best avoided and professional advice will identify correct path to take. Pension benefits, especially defined benefit ones, are extremely valuable, even after any LTA charge.
As for the AA, it’s thankful to have some stability and it’s also worth remembering that the limits on the Tapered AA increased by £90,000 for the 2020/21 tax year.
As for tax relief, the rates of this will remain the same as tax rates have not changed. There are modest increases in the tax bands, but for planning this just means that having static rules means that the effects of planning can be fully analysed and the correct advice given to make use of the rules that we have in a suitable manner for clients.