Pensions lifetime allowance to increase 0.5% for tax year 2021-22

21 October 2020

It has been announced that the pensions Lifetime Allowance (LTA) will increase to £1,078,900 from the current figure of £1,073,100, in tax year 2021-22. This is an uplift of 0.5% in line with the rate of inflation that was confirmed on 21 October 2020.

The LTA rises each year at the same rate as the consumer price index figure, and this means that savers will be entitled to an additional £1,450 in tax-free cash in 2021-22.

The LTA means that there is a cap on the amount of pension benefit that can be taken from pension schemes without prompting an additional tax charge, and this is regardless of whether benefits are drawn as a lump sum or as ongoing retirement income.

The state pension triple-lock means that it will increase by whichever is highest of 2.5%, average earnings or inflation rates. From April 2021, the state pension will rise by 2.5%, and not the lower inflation rate that has been announced, or the growth in average earnings figure for the May-July quarter, which was -1%. This means that it will be the third consecutive year in which the state pension has increased by more than inflation.

The flat rate state pension will see a rise of £4.40 per week, to bring it up to £179.60, and those on the old system can expect to receive £3.40 more per week, amounting to a weekly figure of £137.65.

 


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