Pension warning: Expert warns I can see Sunak lowering lifetime allowance

Budget 2021: Rishi Sunak mocks Labour with 'red flag' jibe

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Chancellor of the Exchequer Rishi Sunak announced big spending commitments in his Budget today but surprised some by not addressing a number of taxation areas. Pensions were also not a key theme in today’s unveiling, although the Government has announced they will consult on changes to the regulatory charge cap for pension schemes. Mr Sunak said today: “Innovation comes from the imagination, drive and risk-taking of business. “It’s why I’m announcing today, we will consult on further changes to the regulatory charge cap for pension schemes, unlocking institutional investment while protecting savers.”

While this was the only announcement relating to pensions, Nimesh Shah, CEO of Blick Rothenberg, tells Express.co.uk that the pension lifetime allowance could be lowered.

It currently stands at £1.073million, and was frozen at this threshold until 2026 in March.

Mr Shah said: “The lifetime allowance was frozen in March, and has been brought down from £1.8million. It has been constantly brought down.

“Now it’s at just over a million, and it is frozen at that level for another five years.

“I think that it is something which is attractive for the Government and I can see it coming down, definitely, in the future.”

The decision to freeze various tax thresholds, including the pension lifetime allowance, sparked concerns as many feared inflation could drag more people into the tax net.

Mr Shah adds that this was the Government’s intention as part of a “clever” plan to bring in more cash without an outright tax hike.

He continued: “That has been the mood since March. In the March Budget they estimated freezing the allowances (of the pension lifetime allowance, income and wealth taxes) was going to raise £21billion come 2026.

“It’s a very clever tactic from the Government because you don’t necessarily notice it happening. The inflationary aspect which you don’t necessarily pay much attention to is constantly eroding your wealth over that period of time.

“It was badged as a stealth tax back then and that’s exactly what it is. People need to be wise to this, they need to be wise to inflation, they need to be wise to the fact they are getting clobbered with more tax.

“People also have to bear in mind the 1.25 percent increase in National Insurance coming in next year, and if anything that could go up in the future.”

Mr Sunak confirmed today that the Government sees inflation remaining way above the two percent target.

The Chancellor warned that inflation will average at four percent next year.

But there was better news on the growth front for the UK economy as Mr Sunak told MPs that the Office of Budget Responsibility (OBR) believed less economic “scarring” had happened as a result of the pandemic than previously predicted.

As a result, the OBR’s latest growth forecasts expect the economy to now grow more rapidly, by 6 percent in 2022 – and then at a rate of 2.1 percent, 1.3 percent and 1.6 percent in the following years.

Mr Sunak said: “In the year to September, the global wholesale price of oil, coal and gas combined, has more than doubled. The pressures caused by supply chains and energy prices will take months to ease.

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“It would be irresponsible for anyone to pretend that we can solve this overnight. I am in regular communication with finance ministers around the world and it’s clear these are shared global problems, neither unique to the UK nor possible for us to address on our own.”

Last week, The Bank of England’s Chief Economist warned that inflation is likely to reach five percent by early next year.

Huw Pill, who succeeded the Bank of England’s former Chief Economist Andy Haldane last month, said he would “not be shocked” to see inflation reach five percent or above in the coming months.

This could mean more and more people being dragged above tax thresholds.

Thresholds for wealth taxes and income tax were also frozen in March.

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