Naomi Jacques, pensions associate, comments on Rishi Sunak's announcement:
"In today's Budget, the Chancellor has announced that the lifetime allowance (LTA) for pension savings is being frozen at its current level of £1,073,100 until April 2026. This marks a change from recent years, when the LTA has increased in line with inflation since it was re-set to £1m in 2016/17.
"For individuals with relatively high levels of pension savings (but certainly not restricted to the richest members of society) this will increase the likelihood of exceeding the LTA when they come to retirement. Any pension benefits above the LTA limit will attract an additional tax charge (of 25% on pension payments or 55% on lump sum payments) over and above the income tax which generally applies to pension benefits. The freeze will initially only affect those whose pension savings are already close to or above the LTA, but an increasing number of people will be impacted as time goes on.
"The change may encourage higher-earning individuals (and their employers) to consider whether their current pension saving arrangements are still appropriate. More generally, however, this should not be seen as a reason to stop contributing to a pension – for many people the LTA will not be a relevant consideration, and even for those whose savings may exceed the LTA there can still be benefits to continuing to contribute. Individuals who currently benefit from LTA protections (which allow them to retain historic, higher LTA levels) will be unaffected by the freeze.
"The Budget also contains a promise to consult within the next month on whether the charge cap (which applies to default arrangements in pension schemes used for automatic enrolment) affects the ability of pension schemes to invest in a broader range of assets and thereby offer the highest possible returns for pension savers. The DWP will publish draft regulations which will address this issue, including by permitting the smoothing of certain performance fees over a multi-year period."