As the dust settles on the budget, two things are clear: there were some significant changes to pensions tax arrangements - and there could be more changes on the way... So why such a flurry of activity on pensions and tax of all things? The answers include mitigating the impact of high inflation and persuading people (and particularly doctors) not to retire/return to work. 

Changes to the lifetime allowance had been widely trailed in the media ahead of the budget but the extent of the changes surprised most people:

• The lifetime allowance charge will be disapplied from 6 April 2023 and the lifetime allowance framework will be abolished from 2024.
• The annual allowance will be increased from £40,000 to £60,000 on 6 April 2023.
• Both the money purchase annual allowance and the tapered annual allowance are increasing from £4,000 to £10,000 from 6 April 2023.
• The adjusted income threshold for the tapered annual allowance is increasing from £240,000 to £260,000.
• The Government is going to bring in legislation from 2025 to rectify an anomaly in the tax position for pension savers earning less than the personal allowance.
• Open and closed versions of public sector pension schemes will be considered linked for the purpose of calculating annual allowance charges, allowing members to offset negative movements in the legacy schemes for annual allowance purposes.
• the maximum amount of tax-free cash that can be taken upon commencing a pension has been frozen at £268,275.

In a separate announcement a few days ago, the annual valuation date for the Local Government Pension Scheme is moving from 1 April to 6 April (the start of the new annual allowance year). This has the impact of deferring this year's valuation (10.1%) until next year's annual allowance cycle - when the allowance will be £20,000 higher. This in turn should reduce the number of members of the LGPS breaching the annual allowance threshold.

So what does this all mean in practice? The changes are likely to benefit those who have built up significant defined benefit pension benefits, are still building up a defined benefit pension scheme (mainly public sector workers or those in public sector schemes) or who have a lot of disposable income which they can put into a pension. It does also mean that those who have already accessed their pension benefits and return to work will have more headroom to build up further pension benefits without incurring punitive levels of tax.

So will this achieve what the chancellor intended, with doctors (and others) returning to the workforce? That remains to be seen, particularly as the shadow chancellor has said that Labour would reverse the chancellor's changes to the lifetime allowance. Such uncertainty about the future could actually prove counter-productive, with those who are already over the current lifetime allowance limit of £1.073 million choosing to retire before any further changes can be made.