Posted: 16 / 03 / 2023

Article by: Jon Fisher, Head of Wealth Management
Image: Posted by: HM Treasury and The Rt Hon Jeremy Hunt MP. Photographer: Andrew Parsons, OGL 3, via Wikimedia Commons


After what promised to be a fairly subdued budget for Financial Services, the Chancellor provided one particular surprise in the abolition of the pension Lifetime Allowance (LTA).

This came after several days of leaks that hinted at a raise in the LTA to £1.8m, a level it had previously been at as long ago as 2012. Alongside the abolition of the LTA came a number of tweaks all designed to increase the amount that can be contributed to a pension each year, something the Treasury is hoping will encourage more people back into work.

The LTA itself was introduced in 2006 and is essentially a cap on the total amount that can benefit from certain tax breaks via a pension fund over the course of a person’s lifetime. The cap started at £1.5m and quickly rose to £1.8m before gradually falling back down to its current level at just under £1.1m.

Whilst the cap may be viewed by some as simply a tax on the rich, it had unintended consequences for those benefitting from generous final salary pension schemes, such as senior employees in the NHS. When combined with the effects of the tapered annual allowance, senior consultants and doctors often found themselves in a position where the various tax charges applied could at best act as a significant deterrent to work and at worst, actually exceed the amount they were paid for overtime or shift work. The Chancellor will no doubt hope that retention within the NHS will be improved by removing these barriers and, perhaps some might even be tempted back into the profession.

Others who are due to benefit heavily from this change will be the very wealthy or those benefitting from high incomes. For this small segment of society, pensions have been off the radar for many years, and they’ve been unable to take advantage of the multitude of tax benefits pensions provide. We expect therefore to see a big uptick in demand for pensions in the UHNW space.

Aside from changes to pensions rules, there was some positive news in the OBR forecast which predicted that the UK will now avoid slipping into an official recession and that inflation will likely fall to 2.9% by the end of the calendar year. This will be welcome news to many across the wealth spectrum.

If you have questions about how these pension changes impact you then get in touch with us.



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