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The total amount Britons will be able to accumulate in their pension savings each year before paying extra tax has risen. Meanwhile, the pension lifetime allowance (LTA) charge, which puts a limit on the amount people can save tax-free over their entire life, will be scrapped, taking thousands out of the complexity of pension tax.
For years, the lifetime threshold has been frozen at £1,073,100, however, Mr Hunt today confirmed it will be abolished.
Meanwhile, the amount people can save each year will rise from £40,000 to £60,000.
The policy aims to stop people from reducing their hours or retiring early in order to avoid a hefty tax bill.
The problem has particularly presented itself when it comes to doctors, many of whom are leaving the profession for this reason.
The Government said that as a result of the pensions tax measures announced today, an estimated 80 percent of NHS doctors will not receive a tax charge with respect to accruals under the 2015 NHS career average scheme.
However, ahead of the Budget, one expert has suggested the Government isn’t tackling the issues that matter to most over 50s through this announcement.
Leon Diamond, CEO of LiveMore Mortgages, said: “This ‘jam tomorrow’ tax break will offer little comfort to the majority of the 25.5 million people in the UK aged over 50, three quarters of whom say they feel unsupported by the Government and whose immediate concern is being able to keep their homes, put enough food on their tables or stay warm.
“The issue of rising prices is so severe that one in seven fear they will need to either sell or release equity from their homes to give them enough cash to live on.
“Others say they are worried that the worsening economy will make mortgage rate rises unmanageable, force them to put off their retirement date or prevent them from helping their children to get on the property ladder.
“Unfortunately, the Chancellor’s pension tax break helps to perpetuate the perception that the majority of over-50s have had it easier financially and are comfortably off.
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“Far from worrying about hitting the limits of their pensions savings, many are being significantly squeezed by the cost of living crisis and are already close to the edge financially – and fear that its effects will get worse as prices continue to rise.”
The number of people who have already breached the lifetime allowance and those who risk exceeding it is 1.3 million, according to consultancy firm LCP.
The organisation added less than four percent of the UK’s current workforce is impacted.
If the LTA is breached, Britons face a potentially hefty 55 percent tax bill on the excess sum.
However, it is worth noting the state pension is not included in the calculation.
Stuart Lee, chief executive of Rest Less, also slammed the lifetime allowance decision. He said: “Trying to encourage large numbers of economically inactive over 50s back to the workplace with tax incentives for those with more than £1million in their pension, or who are saving more than £40,000 a year in their pension is like rearranging the deck chairs on the sinking Titanic – it’s absolutely pointless.
“For the majority of people, the reason they left the workplace is not due to a lack of tax incentives on their pension, but rather a lack of access to relevant and flexible work which can fit around the sometimes complex and myriad other responsibilities faced by this demographic.
“The Government would do far better helping to challenge outdated ageist stereotypes and incentivising businesses to hire midlife employees and build large scale attraction, retraining and retention programmes for more experienced workers.”
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