The total amount that workers can accumulate in their pension savings before paying extra tax is expected to be increased in Wednesday’s Budget. The final figure has not been confirmed, but people are expected to be able to save up to £1.8m over a lifetime, up from £1.07m currently.
The policy aims to stop people – particularly doctors – from reducing hours or retiring early owing to tax. Critics say the move will only benefit a small fraction of the workforce.
The chancellor could also increase the £40,000 annual cap on tax-free contributions to pensions, to £60,000.
Pensions to Get Boost
Persuading workers to work for longer is part of UK plans to boost growth with chancellor Jeremy Hunt’s Wednesday announcement on tax and spending being dubbed the “Back to work Budget”. However, consultancy LCP told the BBC the government’s plans to raise pension tax allowances will benefit relatively few workers.
The number of people who have already breached the lifetime limit on pensions before paying tax and those who risk breaching it is 1.3 million, less than 4% per cent of the UK’s current workforce, it says.
Beneficiaries will include those who have worked in the public sector for many years. There has been a particular focus on doctors and consultants – some of whom have retired early or reduced hours for pension tax reasons as the NHS has become increasingly stretched.
UK economic growth has flatlined in recent months and the Bank of England expects the UK to enter a recession this year. One of the main issues raised has been whether enough people who can work, are working.
Many industries have struggled to recruit workers, though job vacancies are falling. Earlier this year, Mr Hunt pledged to consider changes to encourage the over-50s who had taken early retirement during or after Covid to return to work, saying he “would look at the conditions necessary to make work worth your while”.
Not everyone believes that boosting pension allowances is the best policy to meet these ends for the wider working population.
“Increasing them will reduce the damage they do, but even better would be a more thorough reform of how pensions are taxed,” said Carl Emmerson, from the Institute for Fiscal Studies, a leading independent think tank. High earners with big pension pots do benefit from inappropriately generous tax treatment of pensions, but there are much better ways of restricting this than these crude limits.”