Life and times of lifetime allowance

Gordon Brown introduced the lifetime pension allowance as chancellor in 2006, initially setting the cap at £1.5 million. It was introduced on the so-called “A-day”, the start of the new tax year in April, alongside a package of reforms designed to simplify retirement saving.

The allowance increased to £1.6 million during the financial crisis. While Mr Brown, right, removed dividend tax credits from pensions in the late 90s, the Labour leader oversaw subsequent increases to the cap which hit its highest level of £1.8 million in 2010.

By 2013, the cap had fallen to £1.5 million under the Tory-libdem coalition. George Osborne, the then chancellor, reduced the cap several times going as low as £1 million, in an attempt to raise cash during the austerity years before his post-brexit resignation in 2016.

From 2018, for two years, the cap rose with inflation until 2021, as it became apparent cuts to the cap were triggering harsh tax bills for higher earners. This included NHS doctors who were penalised for working overtime due to a quirk in how their retirement savings were calculated.

These inflation increases meant the cap rose to £1.073 million by 2020 – the year the pandemic struck. In an attempt to support public finances, Rishi Sunak froze the allowance. Estimates suggested that the decision would raise £990 million for the Treasury.

Jeremy Hunt was expected to increase the allowance close to its former peak, but he scrapped the allowance altogether in a surprise announcement. He said the move would prevent senior doctors leaving the NHS and encourage the over-55s back into the workforce.