The Chancellor is understood to be looking at increasing the lifetime pension allowance (LTA) in a move that is being interpreted as attempting to reverse the trend of early retirements. The PA news agency understands Jeremy Hunt is considering allowing workers to put more money into their pension pot before being taxed as part of his Budget package.
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, meaning those with more in their personal pension pot incur tax after that threshold has been reached.
Reports differ about how much Mr Hunt could put the LTA up by in his fiscal statement on Wednesday. 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 that 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 Telegraph and The Times said the amount each person can save each year before incurring tax was likely to rise from £40,000 to £60,000.
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. The British Medical Association (BMA) has called the current LTA rate “punitive” and argued it has encouraged doctors to leave the profession.
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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.”
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