Chancellor, Rishi Sunak, has announced that the pensions lifetime allowance (LTA) will be frozen at £1,073,100 until April 2026.

In his Spring Budget speech, Sunak said: "I will maintain at their current levels, until April 2026, the inheritance tax thresholds, the pensions LTA and the annual exempt amount in capital gains tax."

The LTA had been expected to rise by £5,800 in 2021/22, in line with 0.5 per cent Consumer Prices Index (CPI) inflation.

The freeze is expected to save the government £80m in 2021/22, £150m in 2022/23, £215m in 2023/24, £255m in 2024/25 and £300m in 2025/26.

Rumours had been circulating pre-Budget that the Chancellor would freeze the LTA.

Hymans Robertson partner, Chris Noon, warned that the move may be a “kneejerk” decision that could lead to “unintended consequences”.

Additionally, Aegon pensions director, Steven Cameron, said that freezing the LTA would mean “many more” savers would exceed the allowance and face a tax penalty because of achieving good investment growth in their defined contribution pensions.

He added that it is also expected to affect those "building up generous defined benefit pensions".

Those affected include senior doctors saving into the NHS Pension Scheme, with the British Medical Association saying it was "deeply concerned" the freeze will result in large numbers of doctors retiring early or working less.

"Freezing the LTA is self-defeating," added Scottish Widows head of policy, pensions and investments, Peter Glancy.

"While its cousin the annual allowance caps the amount of tax relief that savers receive, the LTA caps the amount of taxation that people eventually pay back to HMRC when they subsequently take money out of their pension.

“A freeze will put people off investing the money in these large pension pots, meaning they will have lower retirement incomes than would otherwise be the case and therefore pay less tax for decades to come. We must also remember that larger pensions equal more disposable income and more spending power. This in turn becomes money in the Treasury’s pocket through VAT, greater corporation tax on the profits from successful businesses, and PAYE income tax from workers’ wages.

“The LTA creates a vicious circle of GDP shrinkage and lost tax receipts. It means less money for schools, hospitals and infrastructure, and is a block on the road to recovery.”

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