Spring Budget 2023: In his Budget address to the House of Commons today (15 March 2023), Chancellor of the Exchequer Jeremy Hunt addressed the issue of unpredictable pension tax charges causing employees to leave work, particularly within the NHS.
The government has therefore increased the pensions annual tax free allowance by 50%, from £40,000 to £60,000.
Hunt said: “The NHS is our biggest employer…I don’t want any doctor to retire early because of the way pension taxes work.”
He added: “The issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons.”
This was in addition to abolishing the lifetime allowance.
The Spring Budget report detailed that once an individual flexibly accesses their defined contribution (DC) pension savings, the total tax-relieved pension savings they can make each year is restricted to the level of the money purchase annual allowance.
To support those who have left the labour market to return and supplement their income, or build up their retirement savings, the government will also increase the money purchase annual allowance to £10,000 from April 2023.
To increase retention in the workforce of the public sector, open and closed public service pension schemes for a given workforce will be considered linked for the purposes of calculating annual allowance charges, thereby allowing scheme members to offset any negative real growth for annual allowance purposes in legacy public service pension schemes against the annual allowance.
David Brooks, head of policy at Broadstone, said: “The annual allowance increase again provides a tax bonus for higher earners but is likely to work against the Chancellor’s aims to create a ‘back to work’ budget.
“That is because those able to pile an extra £20,000 of cash every year into their pension will build their retirement treasure trove far faster and may well be in a position to retire earlier as a result.
“It is hard to escape the view that this package of measures is a political move than seriously, considered pension policy. It is overwhelmingly weighted in favour of the richest who will benefit from significant increases to saving potential.
“Given the UK already faces a pensions adequacy crisis, it is difficult to see how these giveaways are well-targeted to ensure the nation is in the best possible position to achieve positive retirement outcomes.”