The lifetime allowance has been increasing at around 4 per cent since 2006 and many people expected this to continue.
But, in his pre-Budget report speech today, Darling told the commons: “I intend to maintain the ceiling on tax relief given to people with pension funds of up to 1.8m up to and including 2015/16.”
The change means more people will spill over this limit and face a 55 per cent tax charge.
Aegon Scottish Equitible head of pensions development Rachel Vahey says: “It is a bit of a shock to the system. The industry expected the lifetime allowance to continue to either rise inline with inflation or earnings so it feels like the rug has been pulled out from underneath us. Many people who have planned their finances on this basis will have to go back to their advisers and see what this means in practice.”
But Standard Life senior pensions policy manager Andrew Tully says people who do go over the lifetime limit should consider taking the 55 per cent tax on the chin – given the higher rate income tax hike.
He says: “Although this reduces the real value of the tax efficient pension saving, people may still want to save more than £1.8m and pay the 55 per cent tax charge. In some cases, this will be better than saving through a net fund investment such as a unit trust or OEIC, particularly for those paying 45 per cent income tax in future.”