Workers now have an uncapped lifetime allowance (LTA) for pension contributions following Jeremy Hunt's Spring Budget.
The Chancellor announced that the Government would abolish the LTA of £1,073,100, allowing people to save as much in their pension pot as they like without incurring a tax charge.
Before the Budget, there were calls to increase the lifetime allowance, but Hunt decided to go further, saying the reform would "stop over 80% of NHS doctors from receiving a tax charge, incentivise our most experienced and productive workers to stay in work for longer and simplify our tax system, taking thousands of people out of the complexity of pension tax."
Hunt also announced he would increase the annual allowance from £40,000 to £60,000, increasing the amount workers can save tax-free a year by 50%.
Retirement age increase
In another win for savers, ministers have reportedly shelved the Government's rumoured plan to increase the state pension age well ahead of schedule.
The state pension age, currently 66, was due to rise to 68 after 2044, but reports from earlier this year suggested the Government was considering bringing the increase to between 2037 and 2039.
The issue will now be pushed beyond next year's election, the Financial Times reported, amid warnings from Tory MPs the acceleration could provoke a backlash from middle-aged voters.
An official review is due to be published by the Department for Work and Pensions by 7 May 2023.
However, the Government insists it needed more time to consider falling expectancy data, skewed by the Covid-19 pandemic, before it commits to an acceleration of plans.
Former pensions secretary, Steve Webb, said:
"The improvement in life expectancy at retirement that was predicted at the time of the last [pension age] review basically didn't happen. Life expectancy at retirement now is two years shorter than it was when they did the last review."
Despite changes, tax bills could be higher
Although it welcomes the uncapped LTA for doctors, the Association of Tax Technicians (ATT) warns that some may find their tax bills actually increasing.
Senga Prior, chair of ATT's technical steering group, said:
"Since April 2020, for high earners with ‘adjusted income' of over £240,000, the annual allowance has been progressively tapered to a minimum of £4,000. Any pension input in excess of this amount resulted in an income tax charge of up to 45%, or 46%, for Scottish taxpayers.
"The revisions contained in the Budget not only increase the annual allowance itself, but also increase the income level at which the annual allowance is tapered from £240,000 to £260,000.
"The minimum tapered annual allowance is also set to increase from £4,000 to £10,000.
"We are pleased to see the Government taking action to remove what has proved to be a real issue for senior doctors. However, it should be remembered that the very highest earners could still see a tax charge."
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