While much of this year’s Budget continued to be focused on the economic recovery from Covid-19, there were a number of other significant announcements, including the freezing of the pensions lifetime allowance, currently £1,073,100 before taxation kicks in, all the way into April 2026.

Until that time, anything over the limit is subject to significant taxation, applying equally to both defined-contribution and defined-benefit pensions. The current rules state that tax is payable at 55% on everything over the £1,073,100 limit if you take the money as a lump sum, or 25% if you take the money in another way, such as an annuity or drawdown.

Pensions remain by far the most tax-efficient retirement saving option, and on this basis some may see the limit as a constraint, however it can actually be a trigger to consider other options, such as ISAs and property investment. 

When it comes to planning, the most important thing is to consider your end goals and what retirement looks like to you. With this in mind, the next consideration is how to structure your income in retirement, taking into consideration limits that may apply when it comes to your retirement year. With a solid plan in place, the final piece of the puzzle is how to save for it. 

For some, their pension is going to make up the vast majority of their retirement wealth. But in other cases, retirement is going to be less linear, particularly for people who are only in their 40s or 50s now. This means they may want to consider taking a broader, more widely considered approach. It’s therefore advisable to consider the pensions lifetime allowance as a reason to review your pension regularly with your adviser, rather than a reason not to have a pension at all.

Far from relying solely on a pension, many people would be best served considering a range of assets to draw from, including ISAs – which are also tax-efficient – property, investments, state benefits and any ongoing earnings, perhaps from a pre-retirement side hustle that you continue to enjoy post-retirement. With each of these options considered, and a solid plan, you have the basis for a happy retirement tailored to your requirements.