Incentives to stop early retirements

JEREMY Hunt unleashed a multibillion tax bonanza on pensions to stem the wave of early retirements and announced measures to encourage people to keep working.

The tax breaks are aimed at stopping an estimated 15,000 high earners – including senior NHS doctors – leaving the workforce.

In a surprise Budget move, the Chancellor announced he will abolish the £1.07million lifetime allowance – LTA – which was the total amount earners could build up in their pension pots without incurring a tax charge.

Lifted

In addition, he lifted the annual pension allowance – the amount people can contribute every year and still qualify for tax relief.

Mr Hunt increased that ceiling by £20,000, from £40,000 to £60,000, a rise of 50 per cent.

The decision to scrap the LTA was described as the “best news in the pensions marketplace for years” by Kim Barrett, an independent financial adviser.

But other experts warned it will cost around £800million while benefiting fewer than 10,000 people who are already high earners.

In his Budget speech, Mr Hunt recognised strict pension tax rules had triggered an exodus of senior NHS doctors.

But he told the Commons: “As Chancellor I have realised the issue goes wider than doctors.

“No one should be pushed out of the workforce for tax reasons.”

To encourage the over-50s back to work, Mr Hunt promised a new internship-style scheme which he dubbed “returnerships”.

He said these will provide training for jobs in sectors where there are shortages, such as technology.

Introducing his plan, Mr Hunt said: “We will increase the number of people who get the best possible financial, health and career guidance ahead of retirement by enhancing the DWP’s excellent ‘Mid-life MOTs’ Strategy.

“Second... we will introduce a new kind of apprenticeship, targeted at the over-50s who want to return to work. They will be called

Returnerships and operate alongside skills boot camps and sector based work academies.”

He added the apprenticeships would be made “more appealing for older workers, focusing on flexibility and previous experience to reduce training length”.

The Chancellor also announced plans to remove barriers to working faced by disabled people. He

said half of the vacancies in the economy could be filled by people who are inactive because of sickness or disability.

And he promised those who claim disabled benefit “will always be able to seek work without fear of losing financial support”.

The abolition of the LTA means that over the course of their careers, workers can now contribute as much as possible into their pension – and continue benefiting from government tax relief – without incurring a penalty.

It is a major win for pension savers and is expected to cost the Treasury £2.75billion over the next five tax years.

Sir Steve Webb, a former pensions minister, said the move represented a “sea-change” in government policy and would set millions of people free to save more into their nest eggs.

“We are likely to see a flood of new money into pensions from higher earners,” he said.

Conor Holohan of the TaxPayers’ Alliance also welcomed the decision to ditch the LTA, which he said served to “drive people to an early retirement, stifling growth and taking talented people out of the workforce”.

Limited

“Far from just benefitting doctors, this move will ensure workers across all professions can stay in employment for longer,” he added.

But the Institute for Fiscal Studies said the move will have only a limited impact on employment. Director Paul Johnson accused the Chancellor of “using a sledgehammer to crack a nut”.

He added: “Pension tax policy needs a serious long term strategy.”

Torsten Bell, of the Resolution Foundation, branded scraping the allowance a “bad idea” as it would cost £835million a year and benefit only 10,000 people.

Sir Keir Starmer also slammed the move to abolish the LTA – even though his own Shadow Health Secretary, Wes Streeting, last year said Labour would also scrap it.

But disappointed Dennis Reed, chair of the SilverVoices campaign group for the over-60s, said Mr Hunt’s Budget had been a “total non-event” for most older people.

He said: “Senior citizens struggling to pay their bills and find social care will be sadly disappointed that their needs were ignored by the Chancellor today.

“It seems that unless you are in the workforce, or could be persuaded to re-enter the workforce, then you are not worthy of further support.”