EXCLUSIVE: Boost for middle-class workers as Jeremy Hunt plans to raise pension cap to prevent professionals from taking early retirement
- EXCLUSIVE: Middle-class workers will receive a boost to their pensions next week
- Jeremy Hunt hopes the plans will encourage people to extend their careers.
- The lifetime allocation of £1m in tax-free pension savings is the first of its kind in a decade
Jeremy Hunt will give middle-class workers a pension increase next week in a bid to encourage them to extend their careers into old age.
Whitehall sources said the Chancellor will use the Budget to reveal ‘significant’ increases in pension allocations blamed for taking doctors and other professionals out of the workforce.
The lifetime allowance of £1m in tax-free pension savings will see the first substantial increase in a decade.
The £40,000 ceiling on annual pension contributions will also be raised. Both moves are designed to tackle the so-called ‘pensions trap’ that can see some professionals face punitive tax charges if they continue to work into adulthood.
It is said to have led thousands of doctors to quit smoking and is considered a major barrier to encouraging them to return. When the government announced a six-year freeze on annual allocation in 2020, the British Medical Association said it would “drive doctors out of the NHS”.
Whitehall sources said the Chancellor will use the Budget to reveal ‘significant’ increases in pensions.
Helen Morrissey, a retirement analyst at Hargreaves Lansdowne, said increasing allowances was particularly helpful for those on final salary pension plans.
But he warned against “tinkering” and said a complete overhaul of the pension system was needed to remove disincentives to work, such as a £4,000 cap on pension contributions for people returning to work after starting employment. withdraw your pension. .
“Lifetime allowance is no longer a rich people’s problem,” he said. “Because of the way it’s been reduced over time, it now affects a whole range of people who have long service, particularly when they’re in a defined benefit plan.”
Former Tory minister Sir John Redwood added: “I have been very concerned by the loss of many experienced doctors, who say that taxes on their pensions are one of the big problems keeping them from the profession.”
‘This feeds into the growth package because we need to keep more people in their 50s and 60s in work. But I look forward to a much more comprehensive package to boost growth when we hear from the Chancellor next week.”
The lifetime allowance was set at £1.5m when it was introduced in 2006 and increased to £1.8m in 2010. But after a series of cuts, it fell to £1m in 2016 .stay until 2026.
The cuts have drawn large numbers of middle-class professionals into the tax trap. The annual maximum you can pay into your pension has also not kept pace with inflation.
It was reduced from £255,000 to just £50,000 in 2012 and dropped again to £40,000 in 2014, where it has remained. Hunt hinted at the move in January when he said ministers were determined to encourage more people over 50 to return to the workplace.
Mr Hunt is understood to have £9.2bn in ‘free space’, a small fraction of the £97.5bn projected by the National Institute for Economic and Social Research.
“To those who retired early after the pandemic or didn’t find the right role after leave, I say: ‘Britain needs you’ and we will look at the conditions necessary to make the job worthwhile,” he said. At the time, Treasury sources said that while Hunt was attracted to the idea of increasing pension appropriations, there was “no money” to do so in the Budget.
But one source said recent improvements in public finances meant the move would now go ahead. Hunt is understood to have £9.2bn in ‘free space’, a small fraction of the £97.5bn forecast yesterday by the National Institute for Economic and Social Research.
The pensions shakeup is one of a range of ideas being considered as part of a major ‘workplace review’ led by Work and Pensions Secretary Mel Stride, to be released alongside the Budget.
The number of unemployed has risen by around half a million since the pandemic, driven by an increase in those over 50 leaving the workforce.
Labor shortages are blamed for fueling inflation and contributing to sluggish productivity growth in the UK. The government is resisting pressure from companies to relax immigration rules to make up for the end of free movement with the EU.