Chancellor Jeremy Hunt shocked the pensions sector in his Budget today by announcing that he would 'scrap' the pensions Lifetime Allowance and increase the annual allowance from £40,000 to £60,000.

Mr Hunt was expected to increase the much criticised pensions lifetime allowance from £1.071m to £1.8m.

Instead, he went further and scrapped the limit on pension pots completely although pensions professionals are waiting to see the fine detail of the changes.

Mr Hunt said he was scrapping the LTA and increasing the annual allowance to £60,000 to remove barriers on workers, such as medical professionals, from working for longer or going back to work.

The Money Purchase Annual Allowance (MPAA) will also go up from £4,000 to £10,000 per annum.

In his Budget, the Chancellor said: "I have listened to the concerns of many senior NHS clinicians who say unpredictable pension tax charges are making them leave the NHS just when they are needed most. The NHS is our biggest employer, and we will shortly publish the long-term workforce plan I promised in the Autumn Statement.

"But ahead of that I do not want any doctor to retire early because of the way pension taxes work. As Chancellor I have realised the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons. So today I will increase the pensions annual tax-free allowance by 50% from £40,000 to £60,000.

"Some have also asked me to increase the Lifetime Allowance from its £1 million limit. But I have decided not to do that. Instead I will go further and abolish the Lifetime Allowance altogether. It’s a pension tax reform that will…

… stop over 80% of NHS doctors from receiving a tax charge.

… incentivise our most experienced and productive workers to stay in work for longer.

… and simplify our tax system, taking thousands of people out of the complexity of pension tax."

Les Cameron, head of technical at M&G Wealth, said: “The abolition of the Lifetime Allowance was an unexpected but welcome announcement. What we need to know now is the detail of how this will be implemented as the Lifetime Allowance limit is referenced in many different areas of pension legislation affecting amongst other things the amount of PCLS that can be paid.

“Thinking more widely, this should see a reduction in attractiveness of other tax-incentivised vehicles, such as venture capital schemes, which were the natural go-to places for those who’d had their pension funding limited by the Lifetime Allowance.”

David Stevens, retirement director at LV=, said: “Scrapping the lifetime allowance (LTA) and increasing the annual allowance will be welcomed by pension savers throughout the UK.       

“The freeze to CPI rises in the lifetime allowance (LTA) from April 2021 had disappointed many savers and many people will be celebrating the Government’s announcement to scrap the LTA. It penalised good investment decisions and removing it will simplify a complex pensions tax system.

“The increase to the annual allowance (AA) to £60,000 is also the first since April 2010, but it is still significantly lower than its previous highest amount of £255,000 12 years ago.”

Toyosi Lewis, retirement investment specialist, FE Investments, said: “The lifting and removal of various limits on pension tax relief in today’s Budget announced by the Chancellor is a welcome idea. Whilst it appears to be aimed at those thinking about an early retirement to reconsider their plans, it also incentivises those who are still in work to build up bigger pensions.

“As Defined Contribution (DC) pensions become the mainstay of people’s retirement wealth over time and with the investment risk sitting with them, the importance of the above cannot be overemphasised. Getting it wrong could be catastrophic for clients, so independent advice coupled with the right tools and retirement products – such as those provided by the FE Investments – ensures consumers are better able to manage their retirement risks.”

Mr Hunt also announced "Returnerships" - a new form of apprenticeship aimed at the over-50s who want to return to work and want to learn a new employment skill.

The scrapping of the pensions Lifetime Allowance is likely to lead to a wave of additional contributions from the thousands of workers whose pensions have reached the current limit of just over £1m.

One of the key themes of Mr Hunt's Budget was scrapping barriers that stop people from working. Free childcare will also be expanded to enable more people to work.

Earlier Mr Hunt said the latest OBR forecasts show that the UK should narrowly avoid a recession.

• Financial Planning Today will be reporting on the Budget and key measures from 12.30pm so please check back later for updates and sign up to our newsletters to get all the stories. You can do this by registering for the website.