Labor leader Sir Keir Starmer described tax-free pensions in the Budget as a “permanent tax cut” for the wealthy.
Chancellor Jeremy Hunt has exceeded expectations and announced that he will scrap the living allowance in a bid to tackle barriers to working longer.
The lifetime allowance was £1.07m, which is what savers get taxed after exceeding the Personal Pension Threshold.
Mr Hunt also announced an increase in the pension’s tax-free annual allowance from £40,000 to £60,000.
Some pension experts have pointed out that millions of workplace pension savers will not feel the impact of the measures.
But the reforms have been widely welcomed by some within the NHS, who say they could help retain experienced senior staff who play a vital role in healthcare.
Sir Keir told the House of Commons: “We needed a fix for doctors, but today’s announcement is a huge gift to some of the wealthiest people.
“The only permanent tax cut in the budget is for the richest 1%. How can this be a priority for the Government?
“Indeed, our labor market is an iron example of a fundamentally weak economy. Our crisis of participation has never happened anywhere else, not to this extent; this is a feature of Tory Britain and global excuses simply do not wash.”
Tom Selby, head of pensions policy at AJ Bell, said: “Jeremy Hunt has unveiled pensions tax cuts that far exceed anyone’s pre-Budget expectations and the most significant pensions policy intervention since 2015’s pensions freedom.
“Lifetime benefits have long been a pillar of strong investment performance and a deterrent to retirement savings, while creating horrendous complexity in the system.
“It also added to the huge mess engulfing the NHS, with senior doctors choosing to take early retirement rather than pay pension tax.”
Annabel Williams, personal finance specialist at wealth manager Nutmeg, said lifetime allowances were controversial because good investment performances could overstate pensions.
He said: “For some, this has been a barrier to staying in the workforce later in life and continuing to build a retirement pot, and the repeal of the LTA (Lifetime Allowance) will remove this potential barrier,” he said.
Phil Brown, director of policy for the People’s Partnership, the provider of the People’s Pension, said the changes would not affect the vast majority of pension savers.
He said: “At a time when the NHS is facing serious challenges, any measure to encourage valuable and experienced doctors to continue working is welcome, but today’s announcement on lifetime allowances and annual allowances will do nothing to address the problem of undercoverage. – Savings in the UK.
“These changes to pension benefits will have no impact on the vast majority of hard-working savers and will have very little impact on the millions of people saving through auto-enrolment. Job security reform will be the only way to ensure that millions of people can save enough for retirement.”
Sir Julian Hartley, chief executive of membership organization NHS Providers, said: “We welcome the Chancellor’s announcement on pension reform and the abolition of the lifetime allowance.
“This has long been a concern for trusts and we have called on the Government to take bold steps.
“Over a long period of time, a series of quick fixes have sent an influx of senior NHS staff either into early retirement or refusing to take on extra work for fear of punitive tax bills.
“Abolishing the lifetime allowance today will help retain highly valued, experienced NHS staff in the health service who play a vital role in delivering and guiding patient care, as well as training and developing the next generation of the workforce.
“The increase in the annual allowance cap will also mean that senior NHS staff will face lower annual tax bills.
“At a time when the government is trying to get more people back into work, including those unable to work because of health conditions and medical care backlogs, the value of retaining highly skilled workers cannot be underestimated.”