Huge pension rule change revealed by Jeremy Hunt in Budget – how it affects you explained | The Sun

MILLIONS of workers will get a pensions boost after the Chancellor announced a big change to the rules in today's Spring Budget.

The Chancellor has abolished the lifetime pension allowance (LTA) in an effort to keep people in work for longer.

The lifetime allowance currently stands at £1.07million, with savers incurring tax after that personal pension pot threshold has been exceeded.

But today, The Chancellor has abolished the lifetime allowance on tax-free pensions savings altogether.

The pension lifetime allowance was first applied in 2006, when it was set at £1.5 million.

It rose to a peak of £1.8million by 2012 before gradually being cut.


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It was due to stay at £1.07million until 2026.

Mr Hunt has also revealed that the annual allowance rate for pensions will be increased by 50% from £40,000 to £60,000.

  • Millions of households will save £160 after the Energy Price guarantee was extended
  • Cigarette prices will rise after the government hiked tobacco tax
  • Drivers won’t pay more for fuel as duty was frozen and a 5p cut will continue in a huge win for The Sun’s campaign to keep it low
  • The lifetime allowance on pensions will be axed and the annual allowance will increase
  • The government will give councils £500m to fix potholes
  • Millions of energy customers on prepayment meters will no longer pay more
  • Jeremy Hunt unveiled 12 low-tax investment zones across the country
  • Alcohol duty on beer in pubs will be cut, saving 11p per pint – but tax on wine and spirits will increase
  • The Chancellor confirmed that benefits will rise next month
  • Corporation tax will rise to 25% next month
  • The government will extend free childcare to 30 hours for one and two-year-olds
  • Working parents on Universal Credit will get more for childcare and costs covered straight away

This is the amount each person can save every year before incurring tax is likely to rise.

The Chancellor said: "Today I will increase the pensions annual tax-free allowance by 50% from £40,000 to £60,000.

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"Some have also asked me to increase the Lifetime Allowance from its £1 million limit. But I have decided not to do that.

"Instead I will go further and abolish the Lifetime Allowance altogether."

Rob Morgan, chief investment analyst at Charles Stanley said the change could encourage people that are close to, or over, the previous threshold back into work.

He added: "These workers could accrue further pension provision without being penalised when they take benefits.

"It is especially relevant for certain NHS professionals where the limit was an obstacle to a much-needed return to the workplace, but it applies to anyone that has built up significant pension provision and worries about overstepping the limit.”

What is the pension lifetime allowance?

The lifetime allowance is the total amount you can save tax into a pension scheme.

In other words, it’s the maximum amount you can save into all of your pensions combined without incurring a potentially hefty tax charge.

This includes personal, workplace and defined benefit schemes, but excludes your state pension.

The lifetime allowance is one of two which set how much you can pay into your pension before getting penalised with tax.

The other is the annual allowance and caps the amount you can save into your private pension scheme in a tax year.

This is currently set at £40,000 per year, but this will rise to £60,000.

The tapered Annual Allowance rules will change so that even the highest earners can put in up to £10,000 rather than £4,000 at present.

Why was it frozen?

When the lifetime allowance was introduced back in 2006, it stood at £1.5million.

In 2010-11, it went up to £1.8million. Since then it has been cut and frozen.

It was set to be frozen until April 2026.

Freezing the pension lifetime allowance effectively lowered the amount you can put into your pension to avoid an extra tax on withdrawal.

With soaring inflation, the allowance become even more stingy in real terms.

What is the pension annual allowance?

The pension annual allowance is the maximum amount that you can save into your pension in a year before you get penalised with tax.

It covers all your pension pots including personal, workplace and final salary schemes.

The allowance had been frozen until April 2026 and it is currently set at £40,000 per year, but this has been increased to £60,000 today.

If you bust your allowance, you'll need to fill in a self-assessment tax return.

What does it mean for retirement?

While a figure of over £1million may sound like a big sum, over a retirement of 30 years or more, it wouldn't have paid very generously.

The freezing of the lifetime allowance was not something that only wealthy people needed to worry about, as lots of ordinary savers would have felt the impact too.

Freezing the allowance harmed public sector workers such as doctors or senior teachers.

And, if the allowance had remained at the previous level, more and more people would have found themselves dragged into having to pay the tax as their salary increased.

Scrapping the allowance means that higher paid workers who might have felt forced into early retirement may now continue to work.

Former pensions minister and LCP partner Steve Webb said: "A series of measures in today’s Budget will enable large numbers of people to resume pension saving or boost the level of their pension saving."

Mr Webb added that abolishing the allowance will help those who had stopped saving in anticipation of breaching the LTA.

He added: "A series of measures in today’s Budget will enable large numbers of people to resume pension saving or boost the level of their pension saving, according to LCP partner Steve Webb, resulting in a ‘flood’ of money into pensions."

What else has been announced?

Smokers will see the cost of a pack of cigarettes hit a whopping £11.80 after the Chancellor announced a huge tobacco tax hike which will take effect at 6pm this evening (March 15).

Drivers have escaped a price hike as fuel duty has been frozen for the 13th year in a row and the 5p cut has been kept.

In a double win for The Sun's Keep it Down campaign, Jeremy Hunt told MPs he wanted to protect hard-pressed drivers in his first proper Budget.

It means drivers will be spared a crippling 12p rise feared – a combination of the end of the cut and an inflationary rise.

Millions of households will also save £160 on their energy bills after the Chancellor confirmed the extension of the Energy Price Guarantee in the Spring Budget today.

Mr Hunt also confirmed that energy firms will be barred from charging four million families who use prepayment meters more for their energy.

Motorists have also been given a boost in today's Spring Budget as local councils are set to receive £200million to fix potholes.

Meanwhile, the Chancellor is also raising the lifetime pension allowance (LTA) in an effort to keep people in work.

Parents will be £480 a year better off as strict rules on staff-to-children ratios in nurseries has been relaxed.

To help with the cost of living squeeze, the number of kids per staff in nurseries is expected to rise from four to five.

This in turn should see families save £40 a week – or £480 a year.

The maximum amount of cash parents can claim for childcare has also been increased by hundreds of pounds.

The maximum cap for claims per month has remained unchanged for 18 years at £646 for one child and £1,108 for two.

But it will now increase to £950 for a single child and £1,680 for two.

Mr Hunt is also introducing more sweeping childcare changes to let mums and dads go to work.

Currently, parents on Universal Credit can claim back 85% of their childcare costs – but they have to pay upfront first.

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It means parents may have to find more than £1,000 for a month’s nursery care in advance before getting any support.

But childcare payments will soon be paid up front rather than in arrears in a big win for the Sun’s Make Universal Credit Work campaign.

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