Wealthy retirees will be hundreds of thousands of pounds better off after the Budget.
The lifetime allowance will be scrapped on the 6 April. This is a cap on the amount workers can save into their pension tax-free, and is currently set at £1.07m. It was widely expected to increase to £1.8m, but instead Hunt abolished it entirely.
As a result, if your pension pot is worth £1.25m you will be paying £97,295 less to HMRC if you take any money over the current limit as a lump sum. This is according to analysis by Blick Rothenberg, the accountancy firm. If you took out the money as income, you would pay £44,225.
Meanwhile, those with retirement of savings of £1.5m will be £234,795 better off if they took it out in one go, while they would pay £106,728 if taken as income.
However, the 25 per cent tax-free lump sum will remain pegged to the current lifetime allowance, rather than 25 per cent of your whole pot.
This means most people taking money out of their pension after April 6 will have a limit of £268,275 that they can take out tax-free.
“For people with bigger pension pots, the proportion that they are able to take-tax free will become less valuable as inflation takes effect,” said Stefanie Tremain, tax partner at Blick Rothenberg.
“This means their £268,275 will be worth less in 10 years’ time that is now.”
The one group of people who are an exception are those that applied for fixed protection with the Inland Revenue.
This is an arrangement where you fix your lifetime allowance limit at either the value of the pension on April 2016 or £1.25m. They will still get a tax-free lump sum of up to 25 per cent of £1.25m rather than £1.07m.
The lifetime allowance was scrapped in a bid to get professional workers, such as doctors, back into the labour market as the charges if they saved more over the allowance meant they were not keen to return to the workforce.
It is hoped the changes will encourage some to get back to hospitals and GP surgeries, reducing long waiting lists, but it is likely that the numbers who will have this much in their pensions are relatively low.
However, while the news may be cause for celebration for some people now, experts warn it may not last long if the Labour party get into power.
Andy Bolden, Financial Planning Director at investment firm 7IM said: “Initial responses from the leader of the Labour Party derided the move as benefitting only the wealthiest one per cent. Could this move be reversed by any new administration? It was a Labour government that first introduced the limit in 2006 to prevent the very wealthy from benefitting excessively from pension tax reliefs.”