Spring Budget - PwC comments the abolition of the lifetime allowance and increase to pension tax allowances

Raj Mody, global head of pensions at PwC comments on the abolition of the lifetime allowance: 

“It’s a really sensible decision for the Chancellor to remove the Lifetime Allowance. The system was both cumbersome and unnecessary to have both an Annual Allowance at a relatively low level - remember that it was at £215,000 when it first came in which meant the overwhelming majority of people could ignore it - and then still have another Lifetime test. This is the most radical reform to the system since it was first introduced, and is a welcome simplification. It would now be good to see a commitment to avoid yo-yoing about with the new Annual Allowance threshold.”

“People who elected for Fixed Protection will want to review their plans, and possibly consider restarting pension savings. This may still be limited - potentially down to £10,000 pa - for those who are affected by the Tapered Annual Allowance. But what these changes do is now engage everyone again in the concept of long-term retirement savings. That in itself will be a boost to the pensions industry and should ultimately improve everyone’s prospects in retirement.”

Gareth Henty, pensions partner at PwC comments on the increase to pensions tax allowances: 

“Today’s budget brought the first truly radical overhaul of the pension tax allowances system since they were introduced in 2006, with the stated intention to completely remove the pensions Lifetime Allowance. It signals a change in direction from restricting to relaxing pensions relief. The Pensions Annual Allowance will also be increased from from £40,000 to £60,000 per year and the after-retirement allowance increased from £4,000 to £10,000.

“The stated objective of the changes are to prevent skilled workers from leaving the labour market, in particular with a focus on the NHS. If we consider the impact on the NHS, an experienced doctor who has worked for 30 years, earning £120,000 a year and promoted with a 2% real-terms pay rise, could now avoid a £5,500 annual tax charge. They would see a reduction in post-retirement tax penalty of around £70,000 for choosing to work an extra year in the NHS. These savings are meaningful and will make a difference to whether a doctor chooses to work on or not.”

“The increase to the Money Purchase Annual Allowance to £10,000 will be much less meaningful. This is effectively a £25 per month incentive for lower rate taxpayers, and £50 per month for higher rate taxpayers to return to work. Whilst any incentive to return to work is helpful, given both the complexity of setting up and using a pension plan for savings and the restrictions over access to money that comes with that, unfortunately it is hard to see this will make a meaningful difference.”

View our full Spring Budget reactions