A pension boost in Wednesday’s budget may help keep some groups in the workforce, but won’t solve the health problems that keep people out, commentators say.
The chancellor is considering an increase in lifetime pension payments (LTA), which could help support a wider ambition to encourage older workers back into the labor market to help the UK’s shrinking workforce.
PA News understands Jeremy Hunt is considering allowing workers to put more money into their pension fund before tax as part of his budget package.
Baroness Ros Altmann, former pensions minister, said: “Focusing on reforming pensions and benefits will not solve the health problems that keep the over-50s out of work.
“The chancellor is right to consider whether increasing pensions or tightening benefit assessments will lead to over-50s re-entering or staying in the workforce.
“However, the evidence clearly shows that this will not be enough.”
He said that some people “can’t continue to work, especially full-time, because of their health. Post-Covid NHS backlogs, as well as cuts to services, could mean more frail older people waiting for treatment.
“It will continue to keep them out of work and make it harder for them to get back into the workforce if they’ve been out of work.”
Mr Hunt wants to boost Britain’s workforce as he wants to deliver on the Prime Minister’s promise to grow Britain’s stagnant economy.
The lifetime allowance is £1.07m, which is taxed by savers after the personal pension limit is exceeded.
Reports differ on how much Mr Hunt could raise the LTA in his fiscal statement.
The Times said the chancellor would raise it to £1.8m, while The Daily Telegraph said it could be as high as £1.5m.
It is also understood that the annual pension benefit rate could rise in the Budget, with Mr Hunt instructing his advisers to calculate how much the change would cost the exchequer.
Estimates suggest that the amount each person could save each year before tax could rise from £40,000 to £60,000.
Karl Emmerson, deputy director of the Institute for Fiscal Studies (IFS), said: “The lifetime allowance, and in particular the annual allowance, is poorly designed and in need of reform.
“The annual allowance affects those who want to make large but infrequent pension contributions and can provide terrible incentives for high earners with inflexible, defined benefit plans.
“Both have been cut sharply since 2010, bringing the exchequer around £8 billion a year in extra revenue.
“Increasing them would reduce the damage they cause, but a radical reform of the way pensions are taxed would be even better.”
“High earners with superannuation funds would benefit from an disproportionately generous tax regime for pensions, but there are much better ways of limiting this than these crude caps.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Predictions are now at fever pitch that we will see huge lifetime increases and possibly annual benefits in tomorrow’s Budget.
“After years of cuts and stagnation, it will breathe new life into people’s retirement planning and could play a vital role in helping groups such as NHS senior consultants stay in the workforce.
“There is no word yet on whether such changes will be part of a wholesale overhaul of the pension tax system, which has become big, heavy and complex.”
Speaking to Bloomberg earlier this year, Mr Hunt promised to consider fiscal measures to help people over 50 who take early retirement during or after Covid-19 return to work.
The British Medical Association (BMA) has called the current LTA rate “punitive” and has called for doctors to leave the profession.
The lifetime pension was first introduced in 2006, when it was set at £1.5m.
It rose to £1.8m by 2012 before being gradually reduced.
It was due to remain at £1.07m until 2026, but Mr Hunt could choose to make a change.
Alice Guy, head of pensions and savings at Interactive Investor, said: “At current levels, lifetime allowances are becoming increasingly difficult to justify and are incompatible with the government’s aim to support older workers.”
According to him, the tax payments “catch hard-working doctors, senior lecturers and civil servants and push them out of their jobs.
“It will also have a chilling effect on retirement savings, even among people with small pots, as many investors fear they will face heavy tax bills in the future if their investments perform well.
“As many of us are living longer, there needs to be a generous pension system to encourage people to save enough for a comfortable retirement.”
The Treasury said it would not comment on budget speculation.
UK job vacancies fell for the eighth consecutive month, according to figures from the Office for National Statistics (ONS) released on Tuesday. Firms have stopped hiring amid challenges in the broader economy.
The ONS found that job vacancies fell by 51,000 to 1.12 million in the three months to February, while the redundancy rate rose.
Lily Megson, director of policy at My Pension Expert, said: “The Budget must include plans to ensure that more people have access to the information and advice they need to make informed decisions, which will put them in control of their retirement plans.”