Autumn Budget 2025: Part 3 - Will the Lifetime Allowance Make a Comeback?

The Lifetime Allowance (LTA), a long-standing cap on tax-advantaged pension savings, was abolished in April 2024. For many clients, this was a welcome simplification, removing a major barrier to building larger retirement pots. But with Chancellor Rachel Reeves under pressure to reduce the fiscal deficit, speculation is growing that the LTA could be reinstated.

Reeves previously stated that Labour would reverse the abolition, describing it as a "tax cut for the wealthiest." While she has since softened that stance, the upcoming Autumn Budget on 26 November 2025 may force her hand.

Key Points

• The LTA previously capped pension savings at £1,073,100, with excess taxed at 55% if taken as a lump sum, or 25% if taken as income.
• Labour originally pledged to reinstate the LTA, citing fairness and fiscal responsibility.
• Reintroduction could affect clients with large pots, and members using pensions for strategic planning.

Why Might It Return?

• Fiscal necessity: With a multi-billion-pound deficit, the Treasury may revisit pension tax reliefs as a revenue source.
• Political optics: Reintroducing the LTA could be framed as a progressive move, targeting wealthier savers without raising headline taxes.
• Administrative ease: The LTA framework is already familiar to advisers and HMRC, making it easier to reintroduce than a new system.

Example

Imagine a SIPP client who has built a pension pot of £1.5 million through regular contributions and investment growth:

• Under current rules: No LTA charge applies. The full pot can be accessed flexibly, with income taxed at marginal rates.
• If LTA is reinstated at £1.0731m: The excess £426,900 could face a 25% to 55% tax charge, reducing the pot by up to £234,795.

This could significantly affect retirement income, estate planning, and decisions around when and how to access benefits.

What Should You Do Now?

• Review your pension strategy: If your SIPP or SSAS pot is approaching or exceeds £1 million, consider how a reinstated LTA might affect your plans.
• Avoid premature withdrawals: Don't rush to access benefits based on speculation—wait for official announcements.
• Seek professional advice: A tailored review can help you prepare for potential changes without compromising long-term goals.

Looking Ahead

Even if the LTA isn't reinstated in full, the government may introduce modified limits, such as:

• A cap on tax-free growth.
• A ceiling on withdrawals.
• A new form of lifetime testing.

At Morgan Lloyd, we're closely monitoring developments and will continue to provide clear, timely guidance to help you make informed decisions.

Coming Next: Could Employer Contributions Be Taxed?

In Part 4 of our Autumn Budget 2025 series we'll explore whether National Insurance could be applied to employer pension contributions - and what that means for SIPP and SSAS funding strategies.