Rishi Sunak discusses Statutory Sick Pay with Martin Lewis
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The Chancellor announced in his Budget earlier this month that the pension 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. Experts have warned that this move could result in more people paying taxes on their pension.
Tom Selby, senior analyst for AJ Bell, said before the Budget announcement: “If we see a vaccine-inspired spending boom in the UK this summer, for example, inflation could be pushed northwards – and so too would the lifetime allowance under current legislation.
“By freezing the lifetime allowance as inflation spikes, the Chancellor will stealthily drag thousands more people into his tax net.
“If the Chancellor does freeze the lifetime allowance at the Budget, savers will be looking for clarity on when the inflation link will be returned so they can continue to save for the future with confidence.”
The Bank of England’s Chief Economist, Andy Haldane, warned recently that inflation could pose challenges to the UK economy.
He said: “For me, there is a tangible risk inflation proves more difficult to tame, requiring monetary policy makers to act more assertively than is currently priced into financial markets.”
He added that inflation will be a “tiger that has been stirred” that may “prove difficult to tame”.
His comments came at the end of last month following a turbulent January for the UK economy.
Prices climbed 0.7 percent from a year earlier, boosted by the cost of furniture, household goods and food, the Office for National Statistics outlined.
Pensions director at Aegon, Steven Cameron, told Express.co.uk Chancellor Sunak’s policy 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 of £1,073,100.
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“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.”
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