Chancellor Hunt Announces Sweeping Changes to UK Pensions System
In his Budget speech on Wednesday, Chancellor of the Exchequer Jeremy Hunt announced sweeping changes to the pensions system in the United Kingdom, with the aim of encouraging older, highly-skilled workers to stay in the workforce.
The lifetime allowance for pensions was eliminated by Hunt, and the annual contribution limit for tax-free payments was increased by 50%, to a total of £60,000. The lifetime allowance, which is the limit on how much people can build up in their pots over their lifetime, was previously set at £1.07 million and was due to be frozen at this level until 2026.
The Money Purchase Annual Allowance (MPAA), which is designed to prevent wealthy savers from recycling their tax-free lump sum into new pension arrangements, will also be increased from £4,000 to £10,000 from April 2023. This is intended to remove a barrier to people considering returning to work after retirement.
Labour’s attack dogs have been frothing about how deeply unfair this all is, with Rachel Reeves labelling it a ‘tax cut for the richest one per cent’. The party’s Shadow Cabinet have pledged to reverse the move if they win the next election. However, back in September, Shadow Cabinet Member Wes Streeting had proposed the same policy.
The changes will cost the UK Treasury £75,000 ($90,000) per person in tax breaks for some of the country’s wealthiest savers. HM Treasury said reforming the pensions lifetime allowance, annual allowance and money purchase annual allowance would help to tackle NHS waiting lists.
The budget document also noted that, in order to increase retention in the workforce of the public sector, open and closed public service pension schemes for a given workforce would be considered linked for the purposes of calculating annual allowance charges, thus allowing members to offset any negative real growth for AA purposes in legacy public service pension schemes against the AA.
The changes to the MPAA and the AA will be welcomed by the industry, who had sent a letter to HM Treasury calling for the allowance's urgent reform.
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