Jeremy Hunt has scrapped the lifetime allowance cap on tax-free pensions savings – which stood at £1m – in a major boost for well-off Britons.
Labour said the chancellor’s decision to unveil generous pensions allowances in the Budget was a tax cut for “the richest 1 per cent”.
The chancellor had been expected to increase lifetime pension allowance (LTA) for pensions from £1m in a bid to encourage the over-50s to work for longer and reverse the early retirement trend.
But in surprise announcement, Mr Hunt said the lifetime allowance – dubbed the “doctors tax” – would be abolished completely.
The chancellor said he had “listened to the concerns” of senior NHS doctors who say pension tax charges are “making them leave the NHS”.
The Treasury said it would mean an extra 15,000 people in the workforce by 2028, but could not say how many of them would be medics.
“I do not want any doctor to retire early because of the way pension taxes work,” said Mr Hunt. “Some have also asked me to increase the lifetime allowance … I have decided not to do that. Instead I will go further and abolish the lifetime allowance altogether.”
The chancellor also announced wider changes to the annual pensions tax-free allowance. The amount each person can save in their pensions each year before incurring tax will rise from £40,000 to £60,000.
Mr Hunt said: “As chancellor I have realised the issue goes wider than doctors. No one should be pushed out of the workforce for tax reasons.”
But Labour leader Sir Keir Starmer said ditching the lifetime allowance “benefits those with the broadest shoulders”, arguing that it amounted to a “huge giveaway for some of the very wealthiest” during a cost of living crisis.
The Labour leader added: “The only permanent tax cut in the Budget is for the richest 1 per cent. How can that possibly by a priority for this government?”
(PA)
Labour has claimed that changing lifetime allowance would cost the taxpayer £70,000 for every person who stays longer in the labour market as a result.
It’s based on the Office of Budget Responsibility (OBR) estimate that the move will mean an extra 15,000 workers in the economy.
Phil Brown, director of policy for People’s Partnership, provider of the People’s Pension, also criticised the plan. He said the changes will not have an impact on the vast majority of pension savers.
Mr Brown said they “won’t impact the vast majority of hard-working savers and means very little to the millions of people who save through automatic enrolment”, adding: “Reform to workplace saving will be the only way to ensure that millions more people can save enough to live on in retirement.”
But Treasury sources insisted the policy was the “quickest and most effective way” to stop so many deal with doctors retiring early.
(PA)
But Sir Julian Hartley, chief executive of NHS Providers, welcomed the announcement. “For far too long, a series of temporary quick fixes has failed to stem the flow of senior NHS staff either taking early retirement or not taking on extra work for fear of punitive tax bills.”
Mr Hunt’s Budget measures to boost employment will have only “marginal but positive” impact, the Institute for fiscal Studies (IFS) has said.
Director Paul Johnson said the pension tax changes were designed to encourage a relatively small number of better off workers to stay in the workforce a bit longer were “unlikely to have a big effect on overall employment”.
The OBR estimated is that Budget policies – including great childcare support and changes to benefits – could bring 110,000 people into the labour market employment by 2027-28.
There had been reports too that the UK state pension age could rise to 68 sooner than had been expected, but Mr Hunt has kept current arrangements in place.
- Advertisement -
