Traditionally, most people get nowhere near breaching the pensions lifetime allowance, but that’s likely to change over the next five years.
The lifetime pensions allowance is currently £1,073,100.
In his Spring Budget on 3 March 2021, however, Chancellor Rishi Sunak revealed that this would be frozen until 5 April 2026 – along with a raft of other tax rates and thresholds. This will be bad news for some.
It stands to reason that this ‘stealth tax grab’ will affect more savers as time goes by, making it more important than ever to consider how best to utilise their pension tax allowances if they’re to save for their retirement in the most tax-efficient way.
Had the UK’s public finances not been ravaged by COVID-19 over the last year, the lifetime allowance would have increased in line with the Consumer Prices Index (CPI) rate of inflation from the previous September on 6 April 2021.
It would probably have continued to rise modestly every year, giving savers more room to continue to benefit from making tax-efficient pension contributions and investment growth.
The five-year freeze means, if you already have a sizable sum saved in your pension pot, you have an increased risk of exceeding the lifetime allowance and potentially facing a tax charge at some point in the future.
You might be interested in...
01 May 2026
As we've now entered the new tax year, we've outlined below how to prepare for the new tax system changes for 2026/27 and why planning ahead for your tax return in January 2027 is advised. Read our blog for an overview of the upcoming changes.
Learn more
New Tax System Changes for 2026/2730 Apr 2026
Statutory accounts show the past. Management Information delivers timely insights into performance and cash flow, driving better commercial decisions.
Learn more
Why good Management Information is essential for Business Growth
28 Apr 2026
While you can’t control geopolitical tensions, economic volatility, shifting regulations, you can control how your business is structured to respond to them
Learn more
When To Review Your Business Structure
28 Apr 2026
Market volatility and deal pace are changing how SME owners view risk and reward. Read our insights on value creation in today’s M&A market.
Learn more
Increasing the Value of your Business
27 Apr 2026
Compliance matters, but most commercial problems do not arrive neatly at month end. Modern finance supports decisions as they happen, not just records them afterwards.
Learn more
Building a Better Business with an Outsourced Finance Function
20 Apr 2026
For many businesses, the loss of the key person can cause disruption. Having Key Person Insurance can ease financial risk and uncertainty.
Learn more
What Is Key Person Insurance and Why Does It Matters for Your Business?