Jeremy Hunt has scrapped the lifetime allowance cap on tax-free pensions savings – which stood at £1m – in a major boost for well-off Britons.
The chancellor had been expected to increase the tax-free allowance for pensions in a bid to encourage the over-50s to work for longer and reverse the early retirement trend.
The current lifetime pension allowance (LTA) currently stands at £1.07m – meaning those with money in their pension pot incur tax only after that threshold has been reached.
But in surprise announcement at Wednesday’s Budget, Mr Hunt said the lifetime allowance – dubbed the “doctors tax” – would be abolished completely.
The chancellor said he had “listened to the concerns” of senior NHS doctors who say pension tax charges are “making them leave the NHS”.
“I do not want any doctor to retire early because of the way pension taxes work,” he said. “Some have also asked me to increase the lifetime allowance … But I have decided not to do that. Instead I will go further and abolish the lifetime allowance altogether.”
The chancellor also announced wider changes affecting those with less money – increasing in the annual pensions tax-free allowance.
The amount each person can save in their pensions each year before incurring tax will rise from £40,000 to £60,000.
Mr Hunt said: “As chancellor I have realised the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons.”
But Labour leader Sir Keir Starmer said the pensions shake-up amounted to helping the rich – saying the abolition of the LTA “benefits those with the broadest shoulders”.
Sir Keir said it amounted to a “huge giveaway for some of the very wealthiest” during a cost of living crisis.
The Labour leader adding: “How can that possibly by a priority for this government?”
There had been reports too that the UK state pension age could rise to 68 sooner than had been expected, but Mr Hunt has kept current arrangements in place.
The pension lifetime allowance was first applied in 2006 when it was set at £1.5m. It rose to a peak of £1.8 million by 2012 before gradually being cut
It was due to stay at £1.07 million until 2026 but Mr Hunt has chosen to scrap it entirely.
The British Medical Association (BMA) has called the current LTA rate “punitive” and argued it has encouraged doctors to leave the profession.
