How pension tax changes will affect you
Chancellor Jeremy Hunt made major changes to how pension savings work when he set out his Spring Budget to MPs in parliament.
Mr Hunt increased the pensions annual tax-free allowance by 50 per cent from £40,000 to £60,000. He also abolished the lifetime allowance limit, previously set at £1m, in changes that will affect some of the wealthiest people in the country.
The chancellor said the move would encourage NHS doctors, consultants and other high-earners to remain in the workforce fpr longer.
He said: “I have listened to the concerns of many senior NHS clinicians who say unpredictable pension tax charges are making them leave the NHS just when they are needed most.
“The NHS is our biggest employer, and we will shortly publish the long-term workforce plan I promised in the Autumn Statement. But ahead of that I do not want any doctor to retire early because of the way pension taxes work.”
He added: “As chancellor, I have realised the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons. So today I will increase the pensions’ annual tax-free allowance by 50 per cent from £40,000 to £60,000.
“Some have also asked me to increase the lifetime allowance from its £1 million limit. But I have decided not to do that.
“Instead I will go further and abolish the lifetime allowance altogether.”
Mr Hunt said the changes would “stop over 80 per cent of NHS doctors from receiving a tax charge” and incentivise “our most experienced and productive workers to stay in work for longer”.
The changes will affect you if you pay more than £60,000 into your pension annually, or if you saved more than £1.8 million over your lifetime.
The average salary for a full-time role in the UK in 2021 was £38,131.
The LTA is the total amount of money you can build up in a workplace benefit pension scheme and the savings in a defined contribution pension before you must pay tax.
Increasing the allowance means that people could avoid paying as much as £180,000 in tax on their pension pots when they draw the money.
The pension lifetime allowance was first applied in 2006 when it was set at £1.5 million.
It rose to a peak of £1.8 million by 2012 before gradually being cut and was due to stay at £1.07 million until 2026.
Under the new plans announced on Wednesday, there is no limit on how much you can save in your pension over your lifetime.
In his Bloomberg speech earlier this year, Mr Hunt vowed to consider measures that would help the over-50s who had taken early retirement during or after Covid-19 to return to work.
Speaking in January, he said employment levels were lower than they were before the coronavirus pandemic by around 300,000 people.
Mr Hunt said: “So, to those who retired early after the pandemic, or haven’t found the right role after furlough, I say: Britain needs you.