Chancellor Jeremy Hunt introduced major changes to how pensions work when he presented his Spring Budget to MPs.
Mr Hunt increased the annual tax-free pension allowance by 50 per cent from £40,000 to £60,000. It also scrapped the lifetime allowance cap, previously set at £1 million, in changes that will affect some of the country’s wealthiest people.
The chancellor said the move would encourage NHS doctors, consultants and other high earners to stay in the workforce fpr longer.
He said: “I have listened to the concerns of many senior NHS clinicians who say that unpredictable pension taxes will force them to leave the NHS when they need it most.
“The NHS is our biggest employer and we will soon publish the long-term workforce plan we promised in the Autumn Statement. But before that, I don’t want any doctor to take early retirement because of the way pension taxes work.”
He added: “As chancellor I recognize that this issue is wider than doctors. No one should be forced out of the workforce for tax reasons. So today I will increase the pension’s tax-free annual allowance by 50 per cent from £40,000 to £60,000.
“Some have asked me to increase the lifetime allowance above its £1m limit. But I decided not to.
“Instead, I’m going to go ahead and remove the lifetime allowance altogether.”
Mr Hunt said the changes would see “more than 80 per cent of NHS doctors stop receiving tax pay” and encourage “our most experienced and productive workers to stay in the job for longer”.
Who is eligible?
The changes will affect you if you pay more than £60,000 a year into your pension or have saved more than £1.8m in your lifetime.
The average salary for a full-time role in the UK in 2021 was £38,131.
How much money can you earn?
LTA is the total amount of money you can accumulate in workplace pensions and defined contribution pension savings before tax.
The increase in the allowance means people can avoid paying up to £180,000 of tax on their pension pots when they take the money out.
The lifetime pension was first introduced in 2006, when it was set at £1.5m.
It rose to £1.8m by 2012, was gradually reduced and was due to remain at £1.07m until 2026.
Under new plans announced on Wednesday, there is no limit to how much you can save in your pension over your lifetime.
Why did the government make the changes?
Speaking to Bloomberg earlier this year, Mr Hunt promised to look at measures to help people over 50 who took early retirement during or after Covid-19 return to work.
In a speech in January, he said the employment rate was 300,000 lower than it was before the coronavirus pandemic.
Mr Hunt said: “So to those who have retired after the pandemic or haven’t found the right role after the holidays: Britain needs you.
“And we look at what’s needed to make it worth your while.”