Rishi Sunak’s 55% pension tax may ‘send wrong signals’

Anything saved into a pension over this amount is taxed at a much higher rate, currently sitting at 55 percent for lump sum withdrawals. There has been much speculation on whether Prime Minister Rishi Sunak and Chancellor Jeremy Hunt will continue to freeze the Lifetime Allowance for two extra years in the Autumn Statement this week.According to one expert, the freeze is sending pension savers ‘the wrong signals’. The Lifetime Allowance is less than half of what it was 10 years ago meaning more people are falling into the tax net, and left paying a potential 55 percent levy.Andrew Tully, technical director, Canada Life, said: ‘If the Government extends the freeze on the Lifetime Allowance this will simply send the wrong signals to savers who are doing the right thing – saving for their retirements.’It penalises good investment performance as much as it does those able to pay higher contribution rates. It also shines a spotlight firmly on the inequality between those who still enjoy DB pensions and those in DC arrangements.’In real terms, the Lifetime Allowance is less than half what it was 10 years ago.READ MORE: Delaying retirement by 2 years can boost pension pots by £22,000 – ‘sizeable difference!’ The Lifetime Allowance currently £1,073,100 (Image: GETTY)’Scrapping the Lifetime Allowance and having one annual allowance restricting savings into defined contribution pensions would massively simplify pensions at a stroke, but I won’t be holding my breath on that come Budget day.’In the past, the allowance level has risen with prices – meaning that savers do not lose out if inflation is soaring, as it is currently.But during his time as Chancellor, Mr Sunak froze the allowance until 2025/26.The move was forecast to bring the Treasury close to a billion pounds over the period, because as prices rise more people’s savings go over the allowance, leading to new tax bills.DON’T MISSPensioners could get £369 each month via vital DWP benefit – do you qualify for the sum? [INSIGHT]Britons face ‘myriad of issues’ – how to ‘have enough in retirement’ amid market turmoil [EXCLUSIVE]State pensioners could get an extra £182 a week from DWP – tips to boost income [INSIGHT] State pension age is currently 66 in the UK (Image: EXPRESS)’Someone who became a pensioner before the onset of the pandemic and the cost of living crisis seen in the past couple of years isn’t going to face a lower LTA if their pension is already 100 percent crystalised and they are withdrawing an income. Freezing the LTA will mostly impact people in the workforce today who are forced into retirement because they lose their job.’If Mr Hunt extended that freeze by a further two years, it would force pensioners to hand over an extra £400million in tax, analysis by wealth firm Quilter suggested. In total, a seven-year freeze on the Lifetime Allowance could raise £1.4billion for the Government.Jon Greer, head of retirement policy Quilter said: ‘While everyone understands the precarious fiscal position the government finds itself in, changing the lifetime allowance (LTA) once again would add even more complexity to the retirement planning process. Our analysis, based on previous Treasury forecasts, shows a two-year extension would see pensioners hand over at least an extra £400million in tax, on top of the £990m forecasted to be raised by the five year freeze announced in March 2021.An HM Treasury spokesperson previously told Express.co.uk: “The Lifetime Allowance was frozen to ensure the sustainability of the public finances and the current threshold means savers can put over £1million into their pension completely tax-free.’The spokesperson added over nine out of 10 people currently approaching retirement have a pension pot worth less than the Lifetime Allowance, so will not face a tax charge.