Pensions reform is 'bung for the rich worth £27,000 a year'

ITV News Business Editor Joel Hills breaks down today's budget and what it means for the government

Jeremy Hunt's pension reforms have been described as a "permanent tax cut" for the wealthy which do nothing for low and medium earners.

The chancellor removed the limit people can save into their pension pot without paying tax when announcing his Spring Budget - going much further than expected.

In a bid to bring high earners who retired early back into the workforce, he removed the Pensions Lifetime Allowance, rather than raising it from its previous level of £1,073,100.

But that only helps people who expect to, or have already, paid over a million into their pension, of which there are relatively few in the UK.

According to figures on HM Revenue and Customs' website, in 2020 to 2021 only 8,610 lifetime allowance charges were reported by schemes.

Labour leader Sir Keir Starmer said the "only permanent tax cut in the budget is for the richest 1% - how can that possibly be a priority for this government?".

Asked whether it was a budget for the rich, Mr Hunt told journalists: "Of course we want to help older people who want to stay in work and by definition they will generally be on higher salaries."

Under the previous system, anyone who had put over £1,073,100 into their pension would have had to pay up to 55% tax on the excess savings.

ITV News Political Editor Robert Peston said it was "quite a bung for the rich" because high earners who had already stopped paying into their pension because they'd reached their limit would now start saving again.

"The abolition of the limit looks to me like an annual £27,000 a year tax saving," he said.

Pensions reforms do significantly benefit high earners but not those who earn more than £240,000 because their ability to claim relief on pension contributions tapers to zero above those annual earnings.

Mr Hunt said his main aim when reforming pensions was to bring back into the workforce senior doctors and consultants who had retired from the NHS early after reaching their limit.

But the director of the Institute for Fiscal Studies said the chancellor was using a "sledgehammer to crack a nut".

He said there is a case for increasing allowance limits but it "won't have much effect on employment".

ITV News Correspondent Sarah Corker looks at how the budget will impact people

Mr Hunt also unveiled an increase in the annual pension allowance - the limit on how much money someone can build up in their pension in any one tax year while still benefiting from tax relief - from £40,000 to £60,000.

Some pensions experts pointed out that millions of workplace pension savers will feel no impact from the measures.

Pete Hykin, a co-founder of Penfold Pensions, said the changes "will not benefit younger savers or those on low and middle incomes who are struggling to maintain even the minimum pension contributions amidst the cost of living crisis".

"Let’s face it, there aren’t a lot of people in the UK who have £60K spare to put into a pension so the proportion of savers this measure will positively impact is very small," he added.

Tax and pensions specialist, Megan Jenkins, a partner at wealth management firm Saltus, said "the removal of the lifetime allowance has no positive impact on these groups at all".

She told ITV News: “The removal of the lifetime allowance is a welcome change, sending a signal that saving for retirement is something everyone should prioritise. But in reality this limit only impacts a relatively small number of people, and not those on low to middle incomes."

James Kirkup, director of the Social Market Foundation, said: "Abolishing the lifetime allowance will cost the Treasury around £2.75 billion over five years while benefiting only the small group of workers fortunate enough to have pension pots worth more than £1 million.

"Most of those workers are doctors, so this might help with NHS staff retention, but it's a lot of money to allocate to a small number of people with huge pensions."

The chief executive of health service membership organisation NHS Providers, Sir Julian Hartley, agreed it would keep doctors working for longer.

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"Today's removal of the lifetime allowance will help keep highly valued, experienced senior NHS staff - who play a critical role in delivering and directing patient care as well as training and developing the next generation of the workforce - within the health service.

"The increase to the annual allowance threshold will also mean that far fewer senior NHS staff will be hit with large in-year tax bills."

Public Accounts Committee chairwoman Dame Meg Hillier did not agree it would stop the "exodus of people leaving".

The Labour MP told the House of Commons the pension reform "helps the richest 1% but nothing for the poorer workers".

She said it is "nowhere near enough to stop the ticking time bomb that will be poorer pensioners in the future that will cost the Exchequer in terms of benefits in years to come.

"And it will do nothing I think to reverse the exodus of people leaving. It might stop some people in their tracks and make them think, but many will have already made their pension plans."