What could an increase in the Lifetime Allowance mean?

What could an increase in the Lifetime Allowance mean? According to the press, the Chancellor is likely to increase the pension Lifetime Allowance (LTA) tomorrow as part of a package to incentivise work - the maximum pension size before tax is applied to the excess. Potentially, it will go back to its peak level of ￡1.8m from the current ￡1.0731m. There is also talk of an increase to the current limit on annual contributions (the Annual Allowance).

This is only speculation until we see the budget tomorrow but it could be a significant opportunity for a group of people who have stopped funding pensions due to the cap to start doing so again. This would presumably still benefit from marginal income tax relief. The change also means the potential tax free cash on exit would be much higher as it is also linked to the LTA.

It remains to be seen how this will impact on the existing Fixed Protection rules. These allowed people to lock in their Lifetime Allowance at legacy levels as it was reduced in 2012, 2014 and 2016. An increase now back to ￡1.8m would mean some of these people might be better off scrapping their Fixed Protection, though a question could be what will happen if a new government reverses the rules in a few years.

A change to the Annual Allowance would be welcome but would also be complicated. Current rules taper the current Allowance for higher earners meaning a bigger Allowance may be of limited real benefit.

We shall see the reality tomorrow. As ever, the devil is in the detail.