Chancellor Jeremy Hunt has confirmed plans to abolish the lifetime allowance (LTA), whilst the annual allowance will be increased from £40,000 to £60,000 from April 2023.
As part of his Spring Budget, Hunt also announced plans to increase the money purchase annual allowance (MPAA) from £4,000 to £10,000, while the tapered annual allowance will also increase from £4,000 to £10,000 from 6 April 2023.
The adjusted income threshold for the tapered annual allowance will be increased from £240,000 to £260,000 from 6 April 2023.
Under the changes, the LTA charge will be removed from April 2023 before the allowance is abolished entirely from April 2024, with this to be done via a future Finance Bill.
The reforms are designed to help ensure that highly skilled individuals such as NHS clinicians are not disincentivised from remaining in the workforce, with Hunt suggesting that the changes will stop over 80 per cent of NHS doctors from receiving a tax charge.
The LTA, which was initially £1.8m when it was introduced in 2006, had been frozen at £1,073,100 until April 2026 as part of the Spring 2021 Budget.
The government had also faced growing pressure around the MPAA amid the cost-of-living challenges and rising inflation, as industry analysis revealed that, in real terms, the allowance was worth £8,480 less than when it first came into force in 2015.
Recent pension withdrawal figures also sparked concern, with industry experts highlighting these statistics as further evidence that "squeezed savers are being forced to turn to their pension pots to make ends meet".
However, the government also confirmed that the maximum pension commencement lump sum for those without protections, the amount of tax-free cash that can be taken from a pension, will be retained at its current level of £268,275 and will be frozen thereafter.
Alongside the changes to pension allowances, Hunt announced plans to increase efforts around mid-life MoTs, confirming that the Department for Work and Pensions (DWP) will expand access to its in-person midlife M0T offer, providing financial planning and awareness sessions for 50+ Universal Credit claimants, aiming to reach up to 40,000 individuals a year.
