Navigating the big freeze

In this year’s Budget, the chancellor froze the pensions lifetime allowance, currently £1,073,100, until 5 April 2026.

The five-year freeze means that if you already have a sizable pension pot, you have an increased risk of exceeding the lifetime allowance and potentially facing a tax charge at some point in the future. 

According to one reference, this is expected to “affect about 10 per cent of savers, not all of them wealthy, but usually those on higher salaries with a lot of pension savings.”

What is the lifetime allowance?

The lifetime allowance limits the amount of pension benefits that can be withdrawn from all your pension schemes, whether it’s a lump sum or retirement income, without triggering an extra tax charge of up to 55 per cent.

For higher-rate taxpayers, it is possible to manage how and when benefits are taken to postpone any potential tax charge.

What can I do?

• You should regularly monitor the value of your pension pots. If you contribute into a defined contribution pension, particularly if it’s been consolidated into a single pot, the value is relatively easy to view online. For defined benefit schemes, you might have to rely on annual statements.
• Some are changing their behaviour and retiring earlier, stopping contributing in return for a higher salary or other benefit, or paying into other tax-efficient saving options.

If none of those options are on the table, continuing to contribute into your pension and exceeding the lifetime allowance might offer more benefits than stopping contributions altogether.

Whatever your position, make sure you consider how the big freeze will affect you.

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