Pensions - Articles - Chancellor announces 4 billion pound pension tax giveaway

Comments from Broadstone, EY, Barnett Waddingham, Mazars and PIMFA as Jeremy Hunt announces a package of tax reforms including abolishing the Lifetime Allowance (LTA), raising the Annual Allowance (AA) to £60k, and raising the Money Purchase Annual Allowance to £10k. Together the OBR predicts these will cost over £4billion over the next five years.

 David Brooks, Head of Policy at leading independent consultancy Broadstone, commented: “Abolishing the Lifetime Allowance and increasing the Annual Allowance is a huge tax giveaway to wealthiest people in the country.
 “Combined with the increase to the MPAA it totals a package that will cost the country over £4 billion through the next five years. £2.75 billion for the LTA abolition, £1.1 billion for the Annual Allowance and £170m from the increase to the MPAA.
 “The Annual Allowance increase again provides a tax bonus for higher earners but is likely to work against the Chancellor’s aims to create a ‘back to work’ budget. That is because those able to pile an extra £20k of cash every year into their pension will build their retirement treasure trove far faster and may well be in a position to retire earlier as a result.
 “It is hard to escape the view that this package of measures is a political move than seriously, considered pension policy. It is overwhelmingly weighted in favour of the richest who will benefit from significant increases to saving potential. Given the UK already faces a pensions adequacy crisis, it is difficult to see how these giveaways are well-targeted to ensure the nation is in the best possible position to achieve positive retirement outcomes.”

 Russell Laver, Pensions Partner at EY, comments on the pension allowance changes announced at the Chancellor’s Spring Budget: “The £20,000 increase in the annual pension allowance to £60,000 represents a welcome reversal after years of reductions and should encourage a greater number of people to put more into their pension pot. However, while the increase will benefit high earners, it will have no impact for the majority of the UK population.

 “The abolishment of the standard Lifetime Allowance (LTA), which previously stood at around £1m per individual, will also be welcomed by high earners who still have many years to build up retirement savings. It will be less beneficial for high earners who have opted out of pensions due to previous protections and who only have a few years to retirement, as they would likely end up breaching the Annual Allowance, and will not benefit lower earners.

 “These are wholesale and complex changes, and savers who can benefit should consider taking professional advice to ensure they are planning effectively for their retirement.”

 James Jones-Tinsley, Chartered Financial Planner & Self-Invested Technical Specialist at Barnett Waddingham, comments: "The abolition of the lifetime allowance from April 2024 is the opposite of a band-aid on a bullet wound; it is an operation on a graze. The rumours of an increase in the allowance raised questions around protections and people who had used their allowance already. The removal of the allowance altogether answers those questions, but raises many more.

 “The Chancellor must offer clarity, and quickly, on what happens to retirements currently being processed, and the impact assessment on retirement savings. Whether behaviours change and people get back to work will depend on if they think the change is here to stay, or whether future Governments can reintroduce the allowance at a later date. It is also unclear why the charge is being removed in April 2023 but the allowance wont be abolished until April 2024 - if the abolition of the allowance requires primary legislation to pass, Labour may look to stonewall the bill as it favours the wealthy. In that case, it may well become an unfulfilled promise in the next few months."

 The government will increase the Money Purchase Annual Allowance from £4,000 to £10,000 and the minimum Tapered Annual Allowance from £4,000 to £10,000 from 6 April 2023. The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.

 Commenting on this, James adds: “The hike in allowances is good news, though it’s a shame the Chancellor didn’t mimic his drastic Lifetime Allowance solution and scrap them altogether. This would have helped more people than the Lifetime Allowance change will, and specifically those individuals who have semi-retired and the Government would like to get back to work.”

 Nick Nesbitt, Partner & Head of Medical Financial Planning at Mazars comments: “It’s a good news day for doctors and GPs. In a matter of minutes, Jeremy Hunt has written off two of the key drivers behind the mass exodus of GPs, doctors, surgeons, and consultants from the medical workforce. Abolishing Lifetime Allowance, and at the same time hiking the Annual Allowance to £60,000, removes almost all NHS scheme members from pension allowance tax charges. Now only the very highest earners will need to be aware of the thresholds. Whilst the Chancellor has not abolished the tapering of the Annual Allowance for the highest earners, further increases to the level at which such tapering applies will remove more doctors from risk of tapering. The Spring Budget changes, with the wider upheaval of the NHS pension scheme, will change the very face of the workforce and should tackle some of the staffing challenges that have plagued the NHS in recent years. Now is the time for GPs and doctors to rethink their pension and retirement strategy and with so much significant change, advice is crucial to ensuring that retirement plans match long term financial goals.”

 Simon Harrington, Head of Public Affairs at PIMFA, commented: “PIMFA is committed to building a culture of saving and investment in the UK. The steps taken by the Chancellor today in abolishing the personal pension lifetime allowance and raising the annual allowance to £60,000 will, in our view, provide consumers with the right incentives to both save for the future while also ensuring that some are not forced to make a decision between saving and investing and remaining in the workplace.
 “It is right, in our view, that having been frozen for so long, these allowances are reformed to reflect the modern day and we would encourage the Government to keep the annual allowance under review on a regular basis. Going forward, it is vital that any future policy should not negatively impact on the ability of people to save and invest and we would encourage the Government to look at other areas – particularly those that disincentivise individual share ownership – in future.”

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