The Chancellor, Jeremy Hunt, has scrapped the lifetime allowance limit on pensions in a move that will provide an economic boost to pensioners.
Mr Hunt announced the plans as he delivered the Spring Budget in the Commons on Wednesday while speaking about plans to get older people back into work.
A Lifetime Allowance - or LTA - is the maximum amount a person can withdraw from their pension in a lifetime without paying extra tax. The figure stood at £1.07m but in a surprise move today, that has now been scrapped.
Mr Hunt, addressing MPs in the House as he delivered the budget over around an hour, also increased the pensions annual tax-free allowance by 50 per cent, from £40,000 to £60,000, referencing senior NHS staff leaving the health service.
As the third part of his plans to get older people back into work, the Chancellor announced plans to abolish the lifetime allowance limit on pensions.
Mr Hunt said: "Finally, I have listened to the concerns of many senior NHS clinicians who say unpredictable pension tax charges are making them leave the NHS just when they are needed most. The NHS is our biggest employer, and we will shortly publish the long-term workforce plan I promised in the Autumn Statement.
"But ahead of that I do not want any doctor to retire early because of the way pension taxes work.”
"As Chancellor I have realised the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons. So today I will increase the pensions annual tax-free allowance by 50 per cent from £40,000 to £60,000.
"Some have also asked me to increase the Lifetime Allowance from its £1 million limit. But I have decided not to do that. Instead I will go further and abolish the Lifetime Allowance altogether."
Mr Hunt said the changes would 'stop over 80 per cent of NHS doctors from receiving a tax charge' and incentivise 'our most experienced and productive workers to stay in work for longer'. It was later confirmed the Lifetime Allowance charge would be removed from April this year before being abolished entirely from April next year.
The Treasury went on to say the reforms would help ensure that 'high-skilled individuals such as NHS clinicians are not disincentivised from remaining in the workforce'. "Currently, there are limits placed on the total tax-relieved pension savings an individual can make each year and over their lifetime," said the text of the budget.
"To stop these limits from acting as a barrier to remaining in work, the government will remove the Lifetime Allowance charge, before completely abolishing it in a future Finance Bill, and raise the Annual Allowance to £60,000 from April 2023."
Labour, meanwhile, criticised a 'tax cut for the top 1 per cent'.
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