Chancellor’s surprise removal of lifetime pensions allowance is a calculated gamble

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.  

For more insights like this...Visit the MHA Spring Budget 2023 hub  

You’ll find resources and practical guidance on any new tax measures and spending policies announced, to help you understand and manage the impact on you and your business.