The Chancellor wrote his prescription for pensions in today’s Budget with a move to shake up rules that penalise medical professionals. It was part of a package of measures designed to help people stay in work for longer, without being hit by extra tax charges.
There was good news for NHS pension savers as the Chancellor set his sights on the tax-free allowances which had been frozen since 2020.
The Annual Allowance – the amount of money that people can put into their pension every year without paying tax on it – was increased from £40,000 to £60,000.
But the big surprise was that the £1.07 million Lifetime Allowance would be abandoned altogether in April, which the Chancellor said would mean an estimated 80% of NHS doctors will not receive a tax charge.
We’ve been calling for action on these allowances for some time now to help doctors and dentists keep working at a time when their services are so desperately needed.
Alec Collie, head of medical at the Wesleyan Group, said: “From a tax perspective, this budget is just what the doctor ordered.
“The risk of punitive tax charges – primarily from exceeding the annual allowance – has led to some of our most experienced doctors leaving the National Health Service, reducing their hours or dropping out of the NHS Pension Scheme and forfeiting their own retirement saving opportunities.
“They should consider getting advice on re-joining the NHS Pension Scheme, which is among the most generous in the country and has benefits that cannot easily be replicated through private schemes.
“So, this a welcome measure that will hopefully also give today’s students more confidence in their financial future as they embark on their professional careers.”
We also welcome an increase to the Money Purchase Annual Allowance – which allows people who’ve already accessed some of their personal pension to top it back up again – which went up from £4,000, back to its original level of £10,000.
This was a disincentive for many who wanted to return to work because it was a barrier to rebuilding their retirement savings, so today’s announcement will allow them to work more flexibly, supporting retention and helping address workforce shortages.
"The Chancellor also announced that the Pension Commencement Lump Sum that pension members can take out tax free when they retire - is now limited to a fixed £268,275, rather than the current 25% of Lifetime Allowance, and will be frozen going forward."
But Linda Wallace, director of Wesleyan Financial Services, flagged a missed opportunity to provide more direct funding to students studying courses like medicine and dentistry.
She said: “This would help address the workforce challenges that are putting pressure on all clinical staff, including those just entering hospitals and practices.
“We need to see more investment from the government to help retain the next generation of talent that we have in this country as they begin to take up roles in our critical public services.”
The Chancellor announced a new 100% First Year Allowance to replace the outgoing super deduction, which let companies deduct up to 130% of the value of investments from their profits before Corporation Tax was calculated.
The new 100 per cent capital allowance is slightly less generous, but the three-year scheme will certainly help firms plan ahead with greater certainty.
Iain Stevenson, head of dental at the Wesleyan Group, said: “Dental practices are always looking to see how they can invest to improve quality of service for their patients. Under this scheme, they’ll be able to offset some of their tax bills for investment in equipment.
“However, it’s disappointing to see that the Chancellor didn’t take the opportunity to announce any specific measures for dentistry, particularly increases to the NHS spending budget.
“In its current state, it’s no surprise that many dentists are questioning whether it’s feasible to continue providing NHS services, rather than transitioning to private care.”
Cost of living
A big reform of childcare policy announced today is designed to help boost the economy by encouraging more parents back to work while alleviating pressures on household budgets, with the average annual cost of a full-time nursery place now nearly £15,000.
Three and four-year-olds are already entitled to at least 15 hours of free childcare per week for 38 weeks of the year, increasing to 30 hours a week if their parents are working.
This has now been extended to children aged nine months to three years, though a lack of capacity in nurseries means it will take two years to roll out in full.
And a planned £500 hike in average energy bills that was due to arrive in March has been abandoned, with the Chancellor acknowledging: “High energy bills are one of the biggest worries for families.”
Instead, as expected the Energy Price Guarantee will remain at £2,500 for a typical household in England, Wales and Scotland until the end of June.
And we can expect more good news as wholesale gas prices are now in decline and bills are forecast to fall further later in the year.
Lastly, a 5p per litre cut to Fuel Duty, which was imposed in the Budget in in March last year, was due to come to an end in March, but was extended for another year.