Pension tax cuts will ‘help cut NHS waiting lists’ – what are they? | Personal Finance | Finance
That is according to Prime Minister Rishi Sunak who defended the decision of his Chancellor Jeremy Hunt to change a raft of pension allowances when speaking to BBC Breakfast. The decision has been branded as an unfair tax break for “the richest one percent” by Labour, but Mr Sunak said it was an important step to help doctors.
He said: “We need our best doctors working. Because of the pension regime, they were stopped from doing that.
“I want to get the waiting lists down, and that’s why we’ve made the change that we’ve made.”
But what are the reforms the Chancellor has introduced when it comes to pensions?
Pension Lifetime Allowance
The Lifetime Allowance restricted the amount a person could save into their pension across their whole lifetime, while still being able to benefit from tax relief.
READ MORE: New Living Pension launches to tackle low pension saving
If exceeded, Britons would potentially have to pay a substantial 55 percent tax bill, which many were hoping to avoid
The Lifetime Allowance was £1,073,100, but instead of raising it as many experts expected, the Chancellor scrapped the allowance altogether.
In the past, the Lifetime Allowance has been seen as particularly restrictive on higher earning professionals such as doctors, who may have left the workforce to avoid a hefty tax penalty.
This appears to tie into Mr Sunak’s idea that encouraging doctors back to work will slash waiting lists in the NHS.
Steven Cameron, pensions director at Aegon, described the move as a “welcome shock”.
He said: “Removing the lifetime allowance will also cut out a swathe of complex pensions tax rules. It will allow individuals who have stopped contributing for fear of exceeding it to consider restarting contributions.
“It may also, subject to any detailed provisions, allow people who have already started taking benefits to top these up.”
Money Purchase Annual Allowance
This allowance was more than doubled in the Spring Budget, expanding tax relief protection for workers accessing their pension pot.
The MPAA is the tax-free sum people can contribute to their pension after they start to take money from their pot.
READ MORE: Millions of couples have weeks to claim extra £1,200 in tax break
Previously standing at £4,000, it will now rise to £10,000 in a substantial jump.
Lorna Shah, managing director at Legal and General Retail Retirement, discussed the implications of such a move.
She said: “The increase to the Money Purchase Annual Allowance will enable more over 50s to stay in the workforce. Entering into retirement is no longer the line in the sand it used to be and our research shows that phased retirement is on the rise.
“The changes in the Budget will give people more flexibility by allowing them to continue to add to their pension pot instead of feeling penalised for wanting to save.”
Annual Pension Allowance
The standard allowance to save into a pension per year was previously £40,000 or 100 percent of a salary, whichever is lower.
But this will also be raised to a maximum of £60,000 from April 6, 2023 onwards – a 50 percent increase.
It will provide more breathing space for Britons to boost their pension and plan for retirement.
However, according to new research, the tax breaks to incentivise over 50s to get back into the workforce may not work as planned.
An interactive investor poll showed only nine percent of over 50s who are already retired might be tempted back to work following Budget changes.
The survey results appear to suggest a tough road of persuasion ahead for Mr Hunt.
Some 54 percent of retirees said the abolition of the Lifetime Allowance would not encourage them back to work, as they enjoy retirement.
While another 20 percent of retired over 50s said it would not make any difference because their pension pot is not large enough.
