Warm outside? Don’t forget about the LTA freeze

Summer, freedom and (hopefully) sunshine are all well on the way, but not planning for the Lifetime Allowance (LTA) freeze could cast a cloud over your finances.

For the next five years (until April 2026), the pension LTA will be held at its current level of £1,073,100. This means that the amount you can hold in your pension without incurring tax for withdrawals will remain static, even in the face of inflation. As a result, pension savers will likely need to consider other saving options over the next few years in order to avoid a tax bill. Tax is currently payable at 55% on everything over the limit if you take the money as a lump sum, or 25% if you take the money in another way, such as drawdown or through an annuity. As people continue to build up their pensions, the number approaching the LTA will increase as a result of the ‘big freeze’; so, you might wish to consider the various other options available to supplement your retirement savings.

The solution that suits you will be wholly dependent on your personal situation and circumstances. Consideration and planning are therefore important before you select the option that is right for you, particularly in light of the complexity of calculations around pensions and the LTA.

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.