What is the lifetime allowance for pension savings that the chancellor might increase?
n Wednesday, March 15, the chancellor of the exchequer, Jeremy Hunt, will reveal the Government’s Budget for the 2023-2024 financial year.
Hunt will reveal how much tax the Government will collect, whether there will be increases or decreases in taxes, and how the government will use that money.
Among the things the Budget is expected to affect is the lifetime allowance for pension savings, with many expecting an increase.
But, what is the lifetime allowance? Here is everything we know.
What is the lifetime allowance for pension savings?
The lifetime allowance for pension savings refers to the amount of money Brits are legally allowed to save in their pension schemes before they have to start paying tax on it. Currently, this lifetime saving allowance is £1,073,100 and in Wednesday’s budget, it is expected to be increased.
The chancellor could also increase the £40,000 annual cap on tax-free contributions to pensions to as much as £60,000.
Why the lifetime allowance may increase
The reason behind these increases would be to address the issue of workers reducing their hours or retiring early due to hitting their tax-free pension quota. The Government’s hope would be that by increasing the amount, Brits will stay in the workforce for longer without being put off by having to start paying taxes on their pension contributions. This has been an issue, particularly in the medical sector with doctors and consultants reducing their hours in the NHS to avoid going over their allowance.
Persuading workers to work for longer is a part of the Government’s plans to boost growth across the nation. As a part of this, it has been looking into how it could encourage retired, middle-aged workers to rejoin the workforce and support the economy. Talking about this earlier in the year, Hunt expressed that he “would look at the conditions necessary to make work worth your while”.