The Chancellor has announced that he is abolishing the lifetime allowance on tax-free pension savings.

Delivering his Spring Budget to the House of Commons today, Jeremy Hunt was expected by industry experts to raise this allowance to £1.8m, which had been set at £1.07m.

Hunt said his decision to abolish the lifetime allowance can “stop over 80% of NHS doctors from receiving a tax charge”, “incentivise the most experienced workers to stay in work for longer”, and “simplify the tax system”.

Unveiling his first Budget to the House, Hunt began by stating the UK will “not enter a technical recession this year”.

He said that inflation will fall from 10.7% to 2.9% by the end of 2023, according to figures from the Office for Budget Responsibility (OBR), and added that his plans for the economy have a focus on prompting those who have left their jobs to return to the workforce, as well as boosting business investment.

Reacting to the abolition of the pensions lifetime allowance, managing director for customer at Standard Life, Dean Butler, said: “The Chancellor has gone further than anyone was expecting by abolishing the limit altogether.

“Billed as a reform to encourage older people to remain in work, the Treasury’s change of heart will have been influenced heavily by a need to retain senior NHS employees, many of whom having been taking early retirement to avoid substantial pension tax bills.

“While the generosity of the move will have taken everyone by surprise, there were good reasons to review a limit that was increasingly catching middle and higher earners, particularly those with defined benefit pensions, who have done the right thing and saved regularly over the years are who were bumping up against the limit.”

As part of his pension tax reforms, he also announced an increase to the annual pensions annual tax-free allowance, from £40,000 to £60,000.

Chief Investment Analyst at Charles Stanley, Rob Morgan, commented: “Raising the pension annual allowance to £60,000 could help many people build up their retirement nest eggs, especially if they are playing catch up owing to missing contributions in earlier years due to affordability or gaps in employment.

“For those whose earnings vary greatly from year to year it offers more scope to up-size contributions and better plan for retirement.”

Group communications director at Just Group, Stephen Lowe, added: “For ‘Middle Britain’, the abolition of the lifetime allowance and the additional annual allowance will make little difference.

“For very high earners, the extra annual allowance will be useful and it may also help those later in life who find they need to save significantly extra to bolster their pension pot ahead of retirement. Higher earners will also benefit from the increase in the tapered annual allowance and the earnings threshold that triggers it.

“The removal of the lifetime allowance releases people to save as much as they like but for many it will be irrelevant, as the Chancellor himself indicated the obvious winners are doctors in the defined benefit NHS pension scheme.”

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