Jeremy Hunt’s pensions tax break for the highest 1% of savers in Britain stands to benefit almost as many bankers as doctors, an economist has said, as the government insisted the budget giveaway was designed to cut NHS waiting lists.
On a day of renewed pressure over the £1bn giveaway, Rishi Sunak argued that scrapping the tax-free lifetime allowance on pensions would encourage more doctors to stay in employment rather than taking retirement.
However, the government has been warned that abolishing the almost £1.1m limit could have a minimal impact on boosting employment, while Labour has promised to reverse the measure.
Torsten Bell, the chief executive of the Resolution Foundation, said official figures suggested that about 20% of the savers likely to benefit from the change worked in the finance industry.
“It is, yes, lots of doctors – so about a quarter of them are doctors or other senior high-paid medical staff. Twenty per cent, though, work in the financial services sectors. So nearly as many bankers as doctors.”
Answering questions from MPs on the Treasury committee, Bell said he thought the chancellor had been motivated by solving a genuine problem with NHS retention, but that alternative measures could have offered better value for money.
Alongside the taxation of large pension pots, low morale in the NHS workforce was also probably encouraging doctors to retire, he said. “It’s been done for a good reason. There isn’t a perfect answer. But the HR answer may have been cheaper and easier than the tax answer.”
Alongside doctors, other senior public sector workers – including top civil servants, police officials, and headteachers – could benefit from the change. However, more than half of non-retired people with a pension pot worth more than £1m are in the private sector, according to figures from the Office for National Statistics.
Judges already had an exemption to the lifetime allowance, under a policy the government said was designed to fix a recruitment problem.
The Office for Budget Responsibility, the government’s economic forecaster, said scrapping the lifetime allowance could increase overall employment by about 15,000. However, the Institute for Fiscal Studies and the Resolution Foundation said it could have a limited impact, while opening up a new loophole for inheritance tax avoidance.
Although some workers could decide to work for longer if they can put more into their pensions tax-free, the changes might also incentivise early retirement because high earners could reach their savings goals earlier.
Sunak defended the decision, saying it would incentivise doctors to stay in the workforce. “This is about cutting waiting lists,” he said in an interview with BBC Breakfast on Tuesday.
“We need our best doctors, our experienced doctors, we need them working, and they want to work, they want to help get the waiting lists down, they want to work longer hours, they don’t want to retire. And because of the pension regime, they were stopped from doing that, it was preventing them from doing that.
“And I want to get the waiting list down and that’s why we’ve made the change that we’ve made, and it’s going to benefit everyone to get healthcare quicker.”
