Rishi Sunak’s ‘hefty’ 55% tax set to hit more pensions – but you could avoid it | Personal Finance | Finance
Pension saving is a journey many embark upon to put money aside for retirement, but it can have tax implications. One important issue to bear in mind is the Pension Lifetime Allowance (LTA). This is the limit on how much a person can build up in their pot while still enjoying tax benefits.
At present, the Lifetime Allowance is £1,073,100, but this has been frozen for five years.
While many may feel they are nowhere near exceeding the allowance, the freeze could propel people over the line due to investment growth.
Adrian Lowery, personal finance expert at Bestinvest, described the tax as “hefty”.
He explained: “This five-year freeze will significantly increase the numbers of savers that the LTA affects.
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Certain protections are no longer available, but there are two schemes which Britons can still apply for.
These are Individual Protection 2016 and Fixed Protection 2016, but they have different eligibility rules and levels of protection.
As the matter can become complicated, Britons are encouraged to undertake research into this matter, and potentially take pensions advice to help.
To avoid these complexities, there is another potential course of action Britons can take.
But this can involve stepping outside a pension arrangement, so it should be considered carefully.
Those approaching the Lifetime Allowance may have other investments they could consider.
For example, there is an annual ISA allowance available to Britons – currently worth £20,000 for the 2020/21 tax year.
Individuals could choose to invest in different ways, but they should always be aware of the risks this could bring.
The value of investments and income can fall, and people could get back less than they originally put in.
In the same way, Britons may wish to seek professional advice before taking a step towards investments.
People should be aware of the benefits of saving into a pension, namely when it comes to tax.
Money in a pension can grow free of tax, and it is also free of inheritance tax (IHT) when a person dies.
