The pension lifetime allowance (LTA), which limits the amount savers can contribute to their pensions without a tax charge, will be abolished, Chancellor Jeremy Hunt announced in his Spring Budget.
Currently, people who save more than the current allowance level of £1,073,100 in their workplace pension scheme face a tax charge of either 25% or 55% on the excess (depending on how they receive it).
The Chancellor was expected to raise this limit to encourage pension savers to stay in work longer. Instead, he revealed he would “go further” and remove the tax charge from April 2023, before abolishing the allowance altogether from April 2024.
“I do not want any doctor to retire early because of the way pension taxes work,” he said. “As Chancellor, I have realised the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons.”
Hunt also announced an increase to the annual tax-free allowance for pension contributions from £40,000 to £60,000.
Legislation will be introduced in Spring Finance Bill 2023 to:
● increase the annual allowance (AA)
● increase the money purchase AA from £4,000 to £10,000
● increase the income level for the tapered AA to apply from £240,000 to £260,000
● ensure that nobody will face an LTA charge from 1 April 2023.
Other measures affecting individuals confirmed in the Spring Budget include a three-month extension of the energy price guarantee, an
expansion of free childcare and the introduction of ‘returnerships’ to incentivise over-50s to return to work.
In his speech, Hunt said:
“It is a pension tax reform that will stop NHS doctors from receiving a tax charge, incentivise our most experienced and productive workers to stay in work for longer and simplify our tax system, taking thousands of people outside of the complexity.”
“This is a comprehensive plan to remove barriers to work.”
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