The Chancellor has abolished the lifetime allowance limit on pensions savings in a surprise Budget announcement.
It was thought that the £1million limit would be increased to £1.8million but Jeremy Hunt got rid of the maximum amount of money someone can build up while working.
Mr Hunt said this was done to stop doctors and professionals leaving the workplace.
He said: “These changes will stop over 80 per cent of NHS doctors from receiving a tax charge and incentivise our most experienced and productive workers to stay in work for longer.
“It will simplify our tax system, taking thousands of people out of the complexity of pension tax.”
The pensions annual tax-free allowance has increased by 50 per cent from £40,000 to £60,000.
What is the lifetime allowance?
The lifetime allowance is the total amount you can build up in all your pension savings – not including the state pension – without incurring a tax charge.
The current lifetime allowance is £1,073,100.
You will get a statement from your pension provider telling you how much tax you owe if you go above your lifetime allowance. Your pension provider will deduct the tax before you start getting your pension.
The rate of tax you pay on pension savings above your lifetime allowance depends on how the money is paid to you. The current rate is:
- 55 per cent if you get it as a lump sum;
- 25 per cent if you get it any other way, for example pension payments or cash withdrawals.
This story is being updated.