Mr Sunak laid out his economic plan last week as the UK looks to bounce back from the coronavirus crisis. A key announcement came regarding pensions, as the lifetime allowance will be frozen. The current limit of £1,073,100 will remain in place until 2024, capping how much savers can put in without accruing tax bills. It was due to rise by 0.5 percent in the new tax year and would have been some £76,000 higher by 2025 before the freeze, based on the Office for Budget Responsibility’s inflation forecasts. This policy could see more people dragged above the allowance threshold however as inflation accelerated in early 2021.
Prices climbed 0.7 percent in January from a year earlier, boosted by the cost of furniture, household goods and food, the Office for National Statistics outlined.
Economists at Citi said earlier this month: “Household inflation expectations remain well-anchored, but further increases in long-run expectations could still suggest challenges.”
Pensions director at Aegon, Steven Cameron, told Express.co.uk that this could see more pension savers hit with tax bills as their savings are dragged above the £1,073,100 threshold.
He said: “You can transfer from your defined benefit scheme and turn that into a money purchase pension scheme, and you could find that your transfer value is above that £1,073,100 figure.
“Those who are thinking about transferring from a defined benefit to a defined contribution scheme could have pause for thought because they may be within their lifetime allowance if they stay where they are, but if they take a transfer value they may end up above the lifetime allowance on £1,073,100.
“You can be charged 55 percent tax on anything above the allowance, right now there might not be that many people affected, but the longer the lifetime allowance doesn’t rise with inflation, the more people that will have to face up to these considerations.
“The fact that you could find yourself with a tax bill means there is benefit in getting advice.
“The plan is going to remain in place until 2026 – who knows how many people could be affected.”
Mr Cameron warned that those who reap investment returns could be hit with punitive tax bills, and that this is more likely to affect those in the public sector.
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Mr Murphy said: “There are going to be small, steady increases on those on low incomes.
“Those increases are simply because he hasn’t changed the bands where tax rates change, so more people will gradually be paying higher rate tax.
“He is going to collect extra money by simply freezing allowances, it’s a quiet way of collecting taxes and a bit sneaky.”