The increase to the pension annual allowance (AA) from £40,000 to £60,000 announced in the Spring Budget is “exciting news” for advice with clients already contacting firms with queries.
Chancellor Jeremy Hunt unveiled a series of changes to pension taxation limits in today's (15 March) speech, with the abolition of the lifetime allowance (LTA) and increases to the AA and money purchase annual allowance (MPAA).
Investment Quorum chief executive Petronella West (pictured) said: "These changes will help simplify the pension system again and actively encourage people to invest more in their future.
"Our clients have reacted positively to this news and have already started asking us whether they should put more money into their pensions. This is very welcome and exciting news."
Hunt pointed out during his speech that many NHS higher earners had been affected by the limits, with some choosing to take early retirement rather than take the tax hit associated with their pensions.
7IM managing director, intermediary Verona Kenny said it had been one of the biggest shake-ups since A-Day.
"The significantly more generous allowances announced today present another great opportunity for advisers to engage with clients to help them solve the retirement puzzle. But, as I've said repeatedly, it falls to all of us as an industry - not just advisers - to get it together to provide the solutions and services that enable advisers to make the most of the existing and new opportunities so that we can deliver the best possible retirement outcomes for clients."
Succession Wealth wealth planner Alice Shaw took a slightly different view: "Although a positive improvement to pension planning the AA increase may have the opposite effect than desired in some circumstances as it may enable quicker saving of pension pots and earlier retirement rather than keeping experienced individuals in work."
Royal London pensions expert Clare Moffat said the decision to boost the allowance to £60,000 would be welcomed, particularly by senior doctors "many of whom have experienced significant annual allowance tax charges in recent years. This has seen many of them leave, creating staffing shortages at a time when the country desperately needs doctors to clear record waiting lists."
She added: "Although the increase won't apply to previous years, moving forward fewer people will be affected.
"This will also be a boost for the self-employed who might not have been saving as regularly into pensions over the years due to the credit crunch, Covid-19 and the cost-of-living crisis. This increase broadens the scope for making significant contributions as they approach retirement."
Wesleyan Group head of medical Alex Collie said: "For clinicians, today's increase to the annual allowance hasn't come a moment too soon. Coupled with the scrapping of the LTA these measures should reduce the number of doctors having to leave their pension scheme, cut their hours or quit the NHS altogether because of high pension tax bills. We've been calling for an increase in these allowances for some time now and are pleased to see the government taking action."
He added the changes would make a "real difference" to many doctors facing pension tax charges.
"We know many have already left the NHS Pension Scheme to try and avoid these charges and they should consider getting advice on re-joining the scheme to get access to valuable benefits.
"The NHS Pension Scheme is amongst the most generous in the country, and has benefits that cannot easily be replicated through private schemes."
M&G Wealth head of technical Les Cameron said: "The increase to the AA will clearly be welcomed by those who have been most impacted, predominately those on higher incomes and in defined benefit (DB) pension schemes. It also gives additional scope for those with defined contributions schemes to make increased contributions.
"With the corporation tax change rumours unfounded, this increase will be particularly welcomed by SME business owners with the potential for higher rates of corporation tax relief next year.
"In terms of impact the increase from £40,000 to £60,000 means that in 2023/24 a member of a DB scheme can see their pension increase by £3,750 instead of £2,500 before breaching the allowance. A tax saving of £8,000 for higher rate taxpayers."
Cameron also pointed out that the increase to the AA would have a knock on impact on the tapered annual allowance for high earners.
He explained: "You lose £1 of AA for each £2 of ‘adjusted income' you have in excess of £240,000. Currently, your AA is reduced to £4,000 when your ‘adjusted income' hits £312,000. Going forward this will be £352,000 opening up some scope for additional pension funding by higher earners and/or a reduction in annual allowance charges."
Canada Life technical director Andrew Tully commented that the changes would particularly help those in DB schemes with long service who get a promotion, as well as those whose earnings fluctuate.
"As a policy clearly designed to encourage public sector employees to remain in work - primarily those in the NHS - it will be interesting to see how effective this change will be. Come what may, many higher paid workers will benefit from this boost to the allowance."
Chelsea Financial Services managing director Darius McDermott said anyone in a big final salary scheme would be better off.
He added: "While many of those having to fund their own retirement will not be in a position to squirrel large amounts of money away and are therefore unlikely to feel the benefit of the increased AA, the budget has brought pensions back into focus and the changes are a clear signal that pensions are safe under the current government and that long-term saving is being encouraged.
"This is a very positive and much needed message to give a population which desperately needs to save more for its own retirement."
Just Group communications director Stephen Lowe said the change would make little difference to "middle Britain".
However, he added: "For very high earners the extra AA will be useful and it may also help those later in life who find they need to save significantly extra to bolster their pension pot ahead of retirement. Higher earners will also benefit from the increase in the tapered AA and the earnings threshold that triggers it."
