- The pensions lifetime allowance is to be scrapped completely, Chancellor Jeremy Hunt has announced in today’s Spring Budget
- The maximum tax-free cash someone can take will be frozen at the current level of £268,275 as part of the reforms
- The Chancellor has also announced major reforms to the pensions annual allowance:
- The main annual allowance will rise from £40,000 to £60,000
- The money purchase annual allowance (MPAA), which affects those who flexibly access their retirement pot, will rise from £4,000 to £10,000
- The tapered annual allowance, which affects very high earners, will also rise from £4,000 to £10,000
- In addition, the ‘adjusted income’ threshold used to determine when the taper kicks in will increase by £20,000, from £240,000 to £260,000
- Combined, this will cost the government £4 billion over the next five years
Tom Selby, head of retirement policy at AJ Bell, comments:
“Jeremy Hunt has unveiled a pensions tax-cutting bonanza far beyond anyone’s pre-Budget expectations and the most significant retirement policy intervention since the 2015 ‘pension freedoms’.
“The lifetime allowance has long acted as a drag anchor on strong investment performance and a deterrent to retirement saving, while also creating horrendous complexity in the system. It has also added to the huge turmoil engulfing the NHS, with senior doctors choosing early retirement over paying a pension tax penalty.
“Significant hikes in the annual allowance, and in particular the money purchase annual allowance, are also welcome and should help reduce disincentives for over 55s to return to the workforce.
“Taken together, these pension tax cutting measures amount to a colossal boost to savers and retirees and send a clear message to hard-working savers that the government is now firmly on your side.”
