Decision not to further extend income tax freeze welcome but similar freezes in pensions shouldn’t be ignored
Pensions & benefits Personal finance Autumn budget
The announcement in today’s budget that the freeze to the income tax allowances and thresholds will not be extended beyond 2028 is welcome, but similar measure apply to pensions and aren’t just for another three years – they’re currently forever.
Shayala McRae, Principal at LCP, commented:
“The current tax-free lump sum allowance of £268,275 has been in force since the Lifetime Allowance was frozen at £1,073,100 in April 2020. Looking at price inflation since then the value of this allowance in real terms has reduced by around 23%.
“Other pension allowances have also been similarly impacted by limits being frozen over time, with the real value of trivial commutation lump sum and small lump sum limits being reduced by 33% since they were last updated in 2014 and winding up lump sums by 39% since 2012. This silent and steady erosion of pensions allowances should not be ignored. At this rate, by the next general election, the tax-free allowance will have reduced a third in real terms since 2020, and the allowance on wind up will have halved since 2012.”
