In the 2023 Spring Budget, Chancellor Jeremy Hunt has made significant changes to pension allowances.
The lifetime allowance (LTA) has been abolished, and the annual allowance (AA) has increased from £40,000 to £60,000.
This move was made to address concerns that the current allowances were forcing professionals, particularly doctors, to retire in their fifties. This issue has become more pressing since the government announced a six-year freeze on the annual and lifetime allowances in 2020.
The lifetime allowance was first introduced in 2006 at £1.5m and rose to £1.8m in 2010 before falling to just £1m in 2016. Since then, up-ratings have seen the lifetime allowance rise to £1.1m.
The annual allowance was set at £215,000 in 2006 and gradually increased to £255,000 in the 2010/11 tax year before being cut back.
In April 2015, the money purchase annual allowance (MPAA) was introduced at £10,000 before being cut to £4,000 from the 2017/18 tax year.
According to HMRC, more than 66,000 individuals reported pension contributions exceeding their annual allowance in the 2019/20 tax year, up from just 4,440 in 2012/13. This has resulted in a significant increase in allowance charges, with a total value of £253m reported in the 2019/20 tax year, compared to just £14m in 2012/13.
Self-assessment reports for pension contributions exceeding the annual allowance rose from £95m in 2012/13 to £1bn in 2019/20.
Today's changes aim to address the challenges faced by higher-earning professionals, particularly doctors, and provide them with more flexibility in their retirement planning.