Chancellor Jeremy Hunt Announces Overhaul to Pension Tax Rules
In Chancellor Jeremy Hunt's Spring Budget, he announced an overhaul to pension tax rules in an effort to encourage over-50s to remain in or return to work.[0] This includes the abolition of the lifetime allowance on pensions from April 2024 and the increase of the annual allowance from £40,000 to £60,000 from 6 April 2023.[1] The money purchase annual allowance (MPAA) will also more than double from £4,000 to £10,000 from April 2023.[2]
The LTA was originally introduced at £1.5 million on A-Day in 2006 and gradually rose to £1.8 million by 2010. Upratings since then have seen the LTA grow to £1.1 million. The OBR expects the measures to increase employment by 15,000 workers, while the Treasury's costings put the measure at £835 million a year by 2027-2028.[3]
The changes also amount to a huge inheritance tax break as pensions can usually be passed on free of inheritance tax. It is said that defined contribution pensions are a great way to give your wealth to your family, as they are usually not subject to inheritance tax. Financial firms recommend this as a tax-efficient method. Standard Life Insurance has announced that, with the removal of the lifetime allowance, it is possible for an unlimited amount to be passed on tax-free if the individual dies before the age of 75, or at the recipient's marginal rate once they are older.[4] The statement also suggested that, in the long run, individuals may be able to pass their pension wealth to multiple successive generations.[4]
The Office for Budget Responsibility (OBR) forecasts inflation to fall from 10.7 percent last year to 2.9 percent by the end of the year, Hunt said.[5] The amount of the State Pension increase each year is determined by the inflation figure from the previous September, or wages, whichever is greater, at a rate of 2.5 percent.[6]
Shadow Chancellor Rachel Reeves said: “At a time when families across the country face rising bills, higher costs and frozen wages, this gilded giveaway is the wrong priority, at the wrong time, for the wrong people.”[7]
Hunt said: “I do not want any doctor to retire early because of the way pension taxes work.[8] Taxation should not be a cause for exclusion of individuals from the workforce.[9]
0. “Reforms to pension tax rules set to give savers a boost – Which? News” Which?, 15 Mar. 2023, https://www.which.co.uk/news/article/reforms-to-pension-tax-rules-set-to-give-savers-a-boost-aOnUI8V8OkUE
1. “Budget: Pensions expected to boost as tax-free limit set to increase” The Northern Echo, 14 Mar. 2023, https://www.thenorthernecho.co.uk/news/national/uk-today/23386616.budget-pensions-expected-boost-tax-free-limit-set-increase/
2. “Spring Budget 23: Lifetime allowance abolished; AA, MPAA and MTAA increased” Professional Adviser, 15 Mar. 2023, https://www.professionaladviser.com/news/4080545/spring-budget-23-lifetime-allowance-abolished-aa-mpaa-mtaa-increased
3. “Budget battle lines drawn as Labour vows to reverse Hunt’s pensions shake-up” POLITICO Europe, 15 Mar. 2023, https://www.politico.eu/article/row-brewing-over-jeremy-hunts-budget-pension-shake-up-nhs-british-medical-association
4. “What is Jeremy Hunt’s pensions giveaway and who gains most?” The Guardian, 16 Mar. 2023, https://www.theguardian.com/money/2023/mar/16/jeremy-hunt-pensions-giveaway-budget
5. “Spring Budget unveiled as Hunt abolishes lifetime cap on pension savings” upday Polska, 15 Mar. 2023, https://www.upday.com/uk/spring-budget-unveiled-as-jeremy-hunt-says-inflation-could-fall-to-2-9-by-end-of-year
6. “What the Spring Budget means for pensioners including 2024 pay increase” Leicestershire Live, 15 Mar. 2023, https://www.leicestermercury.co.uk/news/cost-of-living/what-spring-budget-means-pensioners-8253564
7. “Labour threatens pension tax raid that ‘will hit millions'” The Telegraph, 16 Mar. 2023, https://www.telegraph.co.uk/politics/2023/03/16/labour-throws-back-to-work-drive-chaos-pledge-scrap-pension/
8. “‘Wrong priority': Labour pledges to reintroduce pensions allowance” City A.M., 16 Mar. 2023, https://www.cityam.com/wrong-priority-labour-pledges-to-reintroduce-pensions-allowance/
9. “Billions spent to stop 15000 workers retiring is ‘huge giveaway to wealthiest'” NewsChain, 15 Mar. 2023, https://www.newschainonline.com/news/financial-news/billions-spent-to-stop-15000-workers-retiring-is-huge-giveaway-to-wealthiest-326049
