MILLIONS of workers could get a pensions boost as the Chancellor prepares to announce a big change to the rules in the Spring Budget.
The Chancellor is looking at raising the lifetime pension allowance (LTA) in an effort to keep people in work.
This will allow workers to put more money into their pension pot before being taxed.
The lifetime allowance currently stands at £1.07 million, with savers incurring tax after that personal pension pot threshold has been exceeded.
The Chancellor could hike this to as much as £1.8 million, according to reports.
It is also understood that the Budget could see the annual allowance rate for pensions increased.
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The amount each person can save each year before incurring tax was likely to rise from £40,000 to £60,000, according to The Times and The Telegraph.
The pension lifetime allowance was first applied in 2006, when it was set at £1.5 million.
It rose to a peak of £1.8 million by 2012 before gradually being cut.
It was due to stay at £1.07 million until 2026 but Mr Hunt could choose to bring a change forward.
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Speaking in January, Mr Hunt said he would consider measures that would help the over-50s who had taken early retirement during or after Covid-19 to return to work.
He said employment levels were lower than they were before the coronavirus pandemic by around 300,000 people.
He added: “So, to those who retired early after the pandemic, or haven’t found the right role after furlough, I say: Britain needs you.
“And we will look at the conditions necessary to make work worth your while.”
What is the pension lifetime allowance?
The lifetime allowance is the total amount you can save tax into a pension scheme.
In other words, it’s the maximum amount you can save into all of your pensions combined without incurring a potentially hefty tax charge.
This includes personal, workplace and defined benefit schemes, but excludes your state pension.
The lifetime allowance is one of two which set how much you can pay into your pension before getting penalised with tax.
The other is the annual allowance and caps the amount you can save into your private pension scheme in a tax year.
This is currently set at £40,000 per year, and has also been frozen.
Why was it frozen?
When the lifetime allowance was introduced back in 2006, it stood at £1.5million.
In 2010-11, it went up to £1.8million. Since then it has been cut and frozen.
It is currently until April 2026, but this could change in tomorrow's Spring Statement.
By freezing the pension lifetime allowance, it effectively lowers the amount you can put into your pension to avoid an extra tax on withdrawal.
With soaring inflation, the allowance become even more stingy in real terms.
What does it mean for retirement?
While a figure of over £1million may sound like a big sum, over a retirement of 30 years or more, it won’t pay very generously.
The freezing of the lifetime allowance is not something that only wealthy people need to worry about, as lots of ordinary savers will feel the impact too.
Lots of those affected will be individuals who have "done the right thing" and been diligent about saving regularly over the years – or who have benefited from good investment growth in their defined contribution pension.
Freezing the allowance harms public sector workers such as doctors or senior teachers.
And, if the allowance remains at its current level, more and more people could find themselves dragged into having to pay the tax as their salary increases.
What else can we expect from the Budget 2023?
The Government is under pressure to extend help for cash-strapped families and businesses facing rising costs and energy bills.
A number of policies were already announced during the Autumn Statement such as the £900 cost of living payment for hard-up households and benefits being uprated to match inflation.
And these are set to take effect in April.
The Treasury has already confirmed that energy firms will be barred from charging four million families who use prepayment meters more for their energy.
Plus, parents are set to be £480 a year better off as strict rules on staff-to-children ratios in nurseries are relaxed.
To help with the cost of living squeeze, the number of kids per staff in nurseries is expected to rise from four to five.
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This in turn should see families save £40 a week – or £480 a year.
You can find out what else is set to be announced in tomorrow's Spring Budget in our handy explainer.
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