Hunt 'considering pension tax-free cap increase' in upcoming Budget
ITV News' Libby Wiener and Joel Hills set out what to expect from the chancellor's Spring Statement
The chancellor is understood to be looking at increasing the tax-free allowance for pensions as part of his Budget package.
Jeremy Hunt is reportedly considering boosting the lifetime pension allowance (LTA), allowing workers to put more money into their pension pot before being taxed, in a move that is thought to be an attempt to reverse the trend of early retirements.
Mr Hunt is keen to bolster Britain’s workforce as he looks to deliver on the prime minister’s pledge of growing the UK’s stalling economy.
The lifetime allowance currently stands at £1.07 million, with savers incurring tax after that personal pension pot threshold has been exceeded.
Reports differ about how much Mr Hunt could put the LTA up by in his fiscal statement on Wednesday.
What are the potential changes to UK pensions?
The Times said the chancellor would hike it to £1.8 million, while The Daily Telegraph said it could be set to more than £1.5 million.
It is also understood the Budget could see the annual allowance rate for pensions increased, with Mr Hunt having tasked his advisers with calculating how much a change would cost the exchequer.
The amount each person can save each year before incurring tax was likely to rise from £40,000 to £60,000, according to The Telegraph and The Times.
The Treasury said it does not comment on Budget speculation.
In his Bloomberg speech earlier this year, Mr Hunt vowed to consider fiscal measures that would help the over-50s who had taken early retirement during or after Covid-19 to return to work.
Speaking in January, he said employment levels were lower than they were before the coronavirus pandemic by around 300,000 people.
Mr Hunt said: “So, to those who retired early after the pandemic, or haven’t found the right role after furlough, I say: Britain needs you.
“And we will look at the conditions necessary to make work worth your while.”
The pension lifetime allowance was first applied in 2006, when it was set at £1.5 million.
It rose to a peak of £1.8 million by 2012 before gradually being cut.
It was due to stay at £1.07 million until 2026 but Mr Hunt could choose to bring a change forward.
What are the issues with the current pension system?
The British Medical Association (BMA) has called the current LTA rate “punitive” and argued it has encouraged doctors to leave the profession.
On its website, the BMA said: “High contribution rates, significant pay erosion, and a punitive pension taxation system have resulted not only in an exceedingly high cost of scheme membership for senior doctors, but also in them receiving reduced pension benefits.
“This has resulted in large numbers of doctors retiring early or reducing their hours.”
In January, former pensions minister Baroness Altmann lobbied ministers to change “illogical” pension rules to help ease a workforce crisis in the NHS.
During a House of Lords debate, the Conservative peer said “even middle earners” were finding that their “supposedly tax-free pension contributions” were “causing them to receive huge tax demands that can even exceed the extra earnings”.
She said it meant that some doctors were “effectively paying to work for the NHS” and that the current system was “incentivising people not to work”.
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