Sign up for the View from Westminster email for expert analysis straight to your inbox
Get our free View from Westminster email
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.”
Recommended
- Budget 2023: Jeremy Hunt delivers Spring statement and says ‘UK won’t enter recession’ – live updates
- Budget 2023: Corporation tax hike will ‘hammer’ economy, say Tory rebels
- Budget 2023: Jeremy Hunt reveals £11bn for defence spending
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 added: “The only permanent tax cut in the Budget is for the richest 1 per cent. How can that possibly by a priority for this government?”
Labour has claimed that changing lifetime allowance would cost the taxpayer £70,000 for every person who stays longer in the labour market as a result.
It’s based on the Office of Budget Responsibility (OBR) estimate that the move will mean an extra 15,000 workers in the economy.
Phil Brown, director of policy for People’s Partnership, provider of the People’s Pension, also criticised the plan. He said the changes will not have an impact on the vast majority of pension savers.
Mr Brown said they “won’t impact the vast majority of hard-working savers and means very little to the millions of people who save through automatic enrolment”, adding: “Reform to workplace saving will be the only way to ensure that millions more people can save enough to live on in retirement.”
But Sir Julian Hartley, chief executive of NHS Providers, strongly welcomed the chancellor’s announcement. “For far too long, a series of temporary quick fixes has failed to stem the flow of senior NHS staff either taking early retirement or not taking on extra work for fear of punitive tax bills.”
Recommended
- Starmer challenges Sunak over BBC chairman ‘mentor’ and Tory ‘snowflakes’
- No 10 pressured BBC to avoid using ‘lockdown’ term at height of Covid, leak reveals
The British Medical Association (BMA) had called the current LTA rate “punitive” and argued it has encouraged doctors to leave the profession.
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.
✕
Subscribe to Independent Premium to bookmark this article
Want to bookmark your favourite articles and stories to read or reference later? Start your Independent Premium subscription today.
SubscribeAlready subscribed? Log in{{/url}}