Spring Budget: Big Changes Set For Pensions

Pension changes from 6 April 2023

Chancellor Jeremy Hunt has implemented a series of big changes to the UK pension system in order to keep more doctors in work, including abolishing the pension lifetime allowance (LTA) and raising the annual allowance for pension contributions to £60,000, a major positive step for pension savers.

Furthermore, Hunt has raised the money purchase annual allowance from £4,000 to £10,000 from 6 April – meaning those who have already drawn from their pension can now invest up to £10,000 per annum back into their pot. The adjusted income threshold for the tapered annual allowance will also be increased from £240,000 to £260,000 from next month.

Prior to the Budget, there were rumours that the Lifetime Allowance (LTA) would be raised from £1.07m to £1.8m to encourage over-50s to continue working, but instead it has been completely abolished.

Hunt said that many senior NHS clinicians had expressed concern that pension tax charges were causing them to leave the NHS when they were most needed. As the NHS is the UK’s largest employer, he did not want any doctors to retire early due to pension taxes.

The LTA previously capped the amount that people could invest in their pensions before facing a tax penalty. Those who breached the LTA paid a 25% tax rate on regular pension withdrawals above the limit and a 55% rate on lump sums above the limit.

Experts in the NHS pension scheme, including advisers, stated that the penalties were discouraging doctors from taking on additional shifts to cover staffing shortfalls due to the fear of facing tax penalties.

Following Mr Hunt’s speech, the Treasury confirmed that any Tax Free Cash would be capped at £268,275 (25% of the current LTA of £1.07m), rather than rising to 25% of pension pots greater than £1.07m

Individuals who had previously applied for the right to take a higher lump sum under previous cuts to the LTA will retain their protection.

The ‘rabbit out of the hat’ announcement has shaken up the pension market and opens up opportunities to those individuals who were at, or approaching the LTA, as well as savers who can now invest up to 50% more each year.