Budget 2023: Major changes to pension pots 'tremendous news for economy'

More generous tax-free pensions allowances announced by the Chancellor have been described as “tremendous news for the economy” by a Scottish financial services veteran.

Going beyond expectations, Jeremy Hunt announced that he was scrapping the lifetime allowance, in a move which aims to remove disincentives to working for longer. The lifetime allowance has stood at £1.07 million, with savers incurring tax after that personal pension pot threshold has been exceeded. Hunt also unveiled an increase in the pensions annual tax-free allowance, from £40,000 to £60,000.

Martin Gilbert, the investment veteran who co-founded Aberdeen Asset Management in 1983, and is now chairman of investment vehicle AssetCo, said: “The removal of the lifetime allowance cap (LTA) on pensions is tremendous news for the economy. It means that skilled older workers, particularly in the NHS, will be incentivised to stay in employment or even return to work so they can save for their old age in a highly tax efficient way. We need older workers in the economy to pass on their skills and experience to their younger colleagues. The LTA should never have been reduced to the current level, so the Chancellor’s decisive action to address the issue should be broadly welcomed.”

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, the investment platform, said: “The Chancellor surpassed all our expectations by abolishing the lifetime allowance. This much maligned rule has been a check on investment performance and its removal is extremely welcome. People still need to remain mindful of the annual allowance which has been boosted to £60,000 per year but these changes bring a breath of fresh air to retirement planning that had been hugely complicated by the presence of restrictions on how much you can contribute and how much you can accumulate in a pension. At one stroke the Chancellor has simplified the pension system for everyone, not just higher earners.”

James Lynch, fixed income investment manager at Aegon Asset Management, added: “The Chancellor’s Budget was not particularly exciting. Unless you are close to retirement with a large pension pot that is, as the lifetime allowance has been scrapped. If you are interested in this, there will be plenty to read in the coming days and weeks.”