What’s in store for your pension in 2022?

Many pension allowances have been frozen for several more years, which could see a growing number of people paying more tax over time.

Lifetime Allowance: This is the maximum you can save in your pension over your lifetime, without paying any extra tax charges when you withdraw money from your pot. For the 2021/22 tax year, this allowance stands at £1,073,100, and it will remain at this level until the 2025/26 tax year. Read more in our article How do pension allowances work?

While this limit won’t apply to the majority of pension savers, it may affect some with large pots, or who have saved into defined benefit (DB) pension schemes. They may be unaware that their pension is valued at twenty times their annual pension for Lifetime Allowance purposes, and so an annual pension of £30,000 has a value of £600,000 for the purpose of testing it against the Lifetime Allowance, for example.  Any tax-free cash received from the pension will also need to be added to this figure and tested against their available LTA.

Jonathan Watts-Lay, director at financial wellbeing and retirement specialist WEALTH at work, said: “Whilst having over £1m in pension savings may seem unrealistic to most, reaching the Lifetime Allowance could be closer than many think. And it’s not just high earners and those with defined benefit schemes that will be affected, but those who have saved from an early age, and whose investments have performed well.”

Author: wpadmin

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