When Jeremy Hunt stood up to deliver his autumn statement on 17 November 2022, he knew it was going to be a tough sell.

The UK already held the dubious honour of being the only G7 country to have a smaller economy now than before the pandemic. Then came Russia’s invasion of Ukraine which further ramped up inflation. Not to mention a summer of governmental scandal and resignations. 

A challenging few months for the Conservative Party culminated in Kwasi Kwarteng’s disastrous mini-Budget and Liz Truss’s blink-and-you-miss-it exit via the revolving doors of Number 10.

As the fourth chancellor of the year, Hunt had the unenviable task of announcing £55 billion of “consolidation” in the form of tax rises and spending cuts. 

While he announced that the State Pension triple lock would be honoured, this was noticeable as one of the only high-profile changes to pension legislation. 

Even the widely predicted freezing of the pension Lifetime Allowance (LTA) was absent. 

So where does the LTA sit now, what does this mean for your retirement plans, and could the allowance still be on the chancellor’s radar in the new year?

The LTA has been frozen since the 2021 Spring Budget

Introduced back in 2006, the LTA is a cap on the amount you can withdraw from your pensions without paying a charge.

The charge currently stands at 55% on any excess funds you take as a lump sum and 25% where the excess is taken as income.

While the LTA originally stood at £1,500,000 million, it peaked at £1,800,000 before dropping to just £1,000,000 in the 2016/17 tax year. From 2018, it increased in line with the Consumer Price Index (CPI) until Rishi Sunak opted to freeze it in 2021.

In the wake of the pandemic, the measure was intended to raise extra Treasury funds to the tune of nearly £1 billion. This money would be clawed back via the LTA charge itself, and through money “saved” in tax relief payouts, as pension savers approaching the limit ceased contributing. 

The allowance currently stands at £1,073,100 until at least 2026.

In the build-up to the autumn statement, it was widely forecast that this freeze would be extended until 2028. And while some frozen allowances were extended to this date, the LTA announcement didn’t arrive.

The current LTA freeze could still affect your retirement, even if your pension pot is modest

With the current freeze not due to end for another four years, the best thing you can do to avoid an unnecessary charge is to be aware that the LTA exists.

While the original LTA of £1,800,000 might have seemed a long way off for some, the frozen amount of just over £1,000,000 is intended to increase the number of pension savers captured.

If you haven’t already, you might consider taking a look at your current pension fund and contribution levels to decide if you might breach the LTA at retirement. With years of growth still to come, even modest funds now could attract a charge when your retirement date arrives.

It’s important to remember that managing your pensions can mitigate the impact of a charge and breaching the LTA won’t always be the worst-case option.

It’s also possible that you might have HMRC protections. Initially introduced to ensure savers weren’t disadvantaged when the LTA dropped, many protections have now expired but contact us if you think you might have or need LTA protection.

The LTA is likely to remain on the chancellor’s radar into the new year

The LTA freeze remained untouched while similar freezes on other allowances – including the Inheritance Tax nil-rate and residence nil-rate bands – were extended.

Initial criticism of the LTA freeze back in the spring of 2021 was that it unfairly punished people for doing the right thing – saving into their pensions.

It might be that Jeremy Hunt was keen to avoid reigniting that debate by extending the freeze further. But the cost to the Treasury of pension tax relief has long been under government scrutiny.

With the government struggling to fill a fiscal black hole, and the financial benefits of extending the LTA freeze clear, further pension changes could still be in the offing.

At Expert Wealth, we can put a long-term retirement plan in place for you that weighs up all of your options at retirement. From applying for HMRC protection to channelling future pension contributions into other tax-efficient wrappers, or simply paying the charge, the right option will be different for everyone.

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With decades of experience, our Chartered Financial Planners have the expertise to help you plan your retirement your way. If you have any questions, please get in touch and speak to us today.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.