Spring Budget 2023: Chancellor of the Exchequer Jeremy Hunt announced in his Budget statement today (15 March 2023) that government will abolish the lifetime allowance for pensions.
The lifetime allowance previously had a £1 million limit, which Hunt said he had been called upon to increase as part of his economic measures.
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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.”
He added: “This is a comprehensive plan to remove barriers to work.”
In order to support those who have left the labour market and returned in order to supplement their income or build up retirement savings, the government also increased the money purchase annual allowance to £10,000. This will be effective from April 2023.
Emma Burrows, head of employment and pensions at Trowers and Hamlins, said: “With 1,124,000 vacancies in the job market, there is clearly a need to keep older workers at work, or attract them back. Jeremy Hunt’s decision to raise the tax free pension allowance will help retain older staff who want work to pay.”
She added: “[Office for National Statistics] data published in September 2022 shows that of those [aged] between 50 and 54 who had left work since the start of the pandemic, 19% left due to stress, and 17% because they did not feel supported in their job. So while the government can use financial incentives, it is sensible for employers to consider how they support employees over the age of 50 better.
“We’d advise employers look closely at retention and speak to their older staff about their concerns. Employers can also take other targeted proactive steps, such as supporting wellbeing for workers over the age of 50, including menopause support.”
Claire Carey, partner, Sackers added: “Clearly, the chancellor is trying to avoid pensions tax being a barrier to those over 50 remaining in work. Sweeping away the lifetime allowance has a number of knock-on consequences which will need to be worked through, and the devil will lie in the detail of the ultimate legislation.
“But, given the relative frequency with which the lifetime allowance has shifted previously and the complexity of the accompanying protection measures, its removal suggests a significant step towards greater pensions tax simplicity.”