For UK financial advisers only, not approved for use by retail customers. Click here for the customer website.
PruAdviser online services will be unavailable from 22:00 on Saturday 9 December until 14:00 on Sunday 10 December for essential website maintenance. We apologise for any inconvenience caused.
2 min read 3 Mar 21
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.
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.
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.
© Prudential 2023
"Prudential" is a trading name of Prudential Distribution Limited. Prudential Distribution Limited is registered in Scotland. Registered Office at 5 Central Way, Kildean Business Park, Stirling, FK8 1FT. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority. Prudential Distribution Limited is part of the same corporate group as the Prudential Assurance Company Limited. The Prudential Assurance Company Limited and Prudential Distribution Limited are direct/indirect subsidiaries of M&G plc which is a holding company registered in England and Wales with registered number 11444019 and registered office at 10 Fenchurch Avenue, London EC3M 5AG, some of whose subsidiaries are authorised and regulated, as applicable, by the Prudential Regulation Authority and the Financial Conduct Authority. These companies are not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.