Spring Budget 2023: Pension Lifetime Allowance abolished

In the UK spring budget of 2023, Jeremy Hunt, the Chancellor of the Exchequer, announced he would abolish the Pension Lifetime Allowance. This removal is set to benefit millions of workers who are saving for their retirement and is a welcome relief for those who were concerned that they would exceed the previous limit of £1.07m.

What is the Pension Lifetime Allowance?

The Lifetime Allowance for pensions is the maximum amount of money that can be saved in a pension pot without incurring tax charges. It was first introduced in 2006, and since then, it has been increased and decreased several times. However, in the latest budget, the Chancellor announced that this limit would be abolished completely.

The removal of the Lifetime Allowance means that workers can now save more money in their pension pots without worrying about tax implications. This is particularly good news for high earners who were in danger of exceeding the previous limit and facing significant tax charges.

Why is the government abolishing the allowance?

The removal of the Lifetime Allowance for pensions is part of the government’s strategy to encourage employees to work longer. Currently, the allowance has caused problems for some professions. For instance, doctors and consultants in the medical field have either retired early or reduced their hours in the NHS due to the risk of surpassing the allowance limit. By abolishing the lifetime allowance, the government aims to tackle this issue and motivate individuals to remain employed for a longer period.

While the removal of the Lifetime Allowance for pensions has been widely welcomed, some critics have argued that it benefits high earners more than low earners. This is because high earners are more likely to be affected by the previous limit and therefore benefit more from the removal of the Lifetime Allowance. However, others argue that abolishing the Lifetime Allowance is a positive step and will encourage more people to save for their retirement.

What else is the Chancellor doing for pension savers?

In addition to the announcement that the Lifetime Allowance would be abolished, the Chancellor also announced an increase to the Pension Annual Allowance. This is the amount you are allowed to contribute to a pension each year before being charged additional tax. The current Pension Annual Allowance is set at £40,000, however, the chancellor revealed that he would be increasing the Annual Allowance to £60,000.

This coupled with the scrapping of the Lifetime Allowance gives pension savers a much welcomed boost to the amount they are able to contribute to their pension over their working lives. It means that they can save more money in their pension pots without worrying about tax implications and is part of the government’s efforts to encourage people to take responsibility for their own financial futures. While some have criticised the move as benefiting high earners more than low earners, it is still a positive step that will benefit many people across the country.

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