Chancellor’s surprise removal of lifetime pensions allowance is a calculated gamble
James Kipping · March 16th 2023 · read
The jury is out as to whether the increase in annual pensions allowance and scrapping of the lifetime pensions allowance will encourage affected workers to postpone their retirement plans.
Announced in the Spring Budget, 50% increase in annual pensions allowance from £40,000 to £60,000, alongside an increase in the adjusted income threshold to £260K, presumably prevents annual allowance charges from applying to most highly skilled workers that the Government is trying to encourage to remain in the labour market.
These individuals, largely senior doctors and NHS consultants could previously have suffered the “double hit” of an income tax charge on contributions and a further charge of up to 55% of the value of their pension savings more than the lifetime allowance (LTA). Removing both charges will be financially rewarding for many, however only time will tell whether it has the desired effect of encouraging people to remain in work.
The removal of the LTA of just over £1m is somewhat surprising. Its abolition will cost the government approximately £835m per annum by 2027/28, making it one of the costliest measures announced in the Spring Budget. Those affected should remain vigilant and monitor whether it paves the way for the government to bring uncrystallised personal pensions within the scope of inheritance tax in future budgets.
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