Pensions: How are the lifetime and annual allowances changing?

The lifetime limit on tax-free pensions savings will be scrapped, and some annual allowances increased, the chancellor has announced.

The changes are part of the government's plan to get older people back into work, but it is not clear how many people will benefit.

This is the maximum amount of pension savings an individual can build up over their career without having to pay additional tax. The current £1,073,100 limit was due to last until 2026.

There had been speculation it would be increased to £1.8m.

However, in the Budget, Chancellor Jeremy Hunt said the allowance would be scrapped altogether.

The current allowance applies to private pensions (defined benefit and defined contribution). The state pension - a government payment - is not affected.

The annual pension allowance is the maximum amount of money an individual can pay into their private pension each tax year without penalty. It is currently £40,000.

Mr Hunt said this would increase by 50% to £60,000 from 6 April.

If someone goes over the allowance, additional tax charges apply.

The money purchase annual allowance is also changing.

This applies to those people who have started drawing some of their defined contribution pension, but who want to continue to work and save more.

The allowance is currently £4,000 a year before a tax penalty, but Mr Hunt is more than doubling that to £10,000 from 6 April.

The lifetime and annual pension allowances have both been cut since 2010, raising about £8bn of extra taxes for the government, according to the Institute for Fiscal Studies (IFS).

The chancellor said removing the lifetime pension allowance would help keep senior doctors in the NHS, and would stop other professionals from retiring early.

But he could not say how many staff would continue working as a result.

Abolishing the lifetime allowance is expected to cost the government about £800m a year from 2025-26, while increasing the annual allowance will cost about £300m a year.

The OBR - the government's independent economic forecaster - said it thought that both measures would increase employment by 15,000 workers.

But in its assessment of the Budget, the IFS called that estimate "optimistic", and said the changes were unlikely to play a big part in increasing the numbers of people in work.

Unlike a private pension, the state pension is a monthly payment made by the government to people who have reached the qualifying age and have paid enough national insurance contributions.

In November, the government confirmed that the state pension will go up by 10.1% - in line with September's Consumer Prices Index (CPI) measure of inflation.

From April 2023 it will be worth:

The government says 12.4 million people currently receive the state pension.

Men and women born between 6 October, 1954 and 5 April, 1960 start receiving theirs at the age of 66.

But for people born after this date, the state pension age is gradually increasing to 67 by 2028 and 68 by 2046.

At a cost of £105bn, the state pension accounts for just under half the total amount the government spends on benefits.

Under the triple lock, the state pension increases each April in line with whichever of these three measures is highest:

The triple lock was introduced by the Conservative/Liberal Democrat coalition government in 2010.

It was designed to ensure the value of the state pension was not overtaken by the increase in the cost of living or the working population's income.

The triple lock was temporarily suspended after the pandemic distorted average wage figures, but it has since been restored.

If they have no other source of income, those above retirement age may also be entitled to Pension Credit on top of the basic state pension.

Like the state pension, this benefit is also due to increase by 10.1% from April.

If you get Pension Credit, you may also be entitled to other financial support, including housing benefit, a reduction in council tax, or help with your heating costs through the Warm Home Discount Scheme.

People born before 26 September 1956 are also entitled to the annual Winter Fuel Payment.