London Daily

Focus on the big picture.

Budget: Pensions to get boost as tax-free limit to rise

Budget: Pensions to get boost as tax-free limit to rise

The total amount that workers can accumulate in their pension savings before paying extra tax is expected to be increased in Wednesday's Budget.

The final figure has not been confirmed, but people are expected to be able to save up to £1.8m over a lifetime, up from £1.07m currently.

The policy aims to stop people - particularly doctors - from reducing hours or retiring early owing to tax.

Critics say the move will only benefit a small fraction of the workforce.

UK economic growth has flatlined in recent months and the Bank of England expects the UK to enter a recession this year. About a quarter of people of working-age - around 10 million people - do not have jobs.

Persuading workers to work for longer is part of UK plans to boost growth, with Chancellor Jeremy Hunt's Wednesday announcement on tax and spending being dubbed the "Back to work Budget".

Mr Hunt is also expected to detail other measures to increase the workforce on Wednesday including:

* Parents on universal credit to receive childcare funding upfront, instead of having to claim it back.

* An increase in the UK-wide £646-a-month per child cap on support for universal credit claimants

* Fitness-to-work tests for those with medical conditions.

* Raising the amount that someone over 55 who has already accessed their private pension can put into their pension to £10,000 a year from £4,000

Consultancy LCP told the BBC the government's plans to raise pension tax allowances would benefit relatively few workers.

The number of people who have already breached the lifetime limit on pensions before paying tax and those who risk breaching it is 1.3 million, less than 4% per cent of the UK's current workforce, it says.

The lifetime allowance is the total amount of money you can build up in a workplace defined benefit pension scheme and savings in a defined contribution pension before you face a further tax charge. The tax is levied on the excess over the allowance. The state pension is not included in the calculation.

Anyone drawing their pension is still liable to income tax as normal.

Beneficiaries from an increase in the allowance will include those who have worked in the public sector for many years. There has been a particular focus on doctors and consultants - some of whom have retired early or reduced hours for pension tax reasons as the NHS has become increasingly stretched.

Dean Butler, managing director for customers at insurance firm Standard Life, said middle earners had been increasingly affected by the cap.

Any increase in the annual allowance, he said, would be of specific help to those with irregular earnings who were relying on making larger pension contributions later in their careers.

In the medical profession, some doctors and consultants have reduced their hours or retired early from the NHS because they were in danger of breaching the tax-free pensions lifetime allowance, and they calculated that continuing to work was counterproductive for their finances.

The annual tax-free pension allowance - which is also expected to increase from £40,000 to £60,000 each year - has been subject to much of the same debate.

Many industries are struggling to recruit workers, though job vacancies are falling. Earlier this year, Mr Hunt pledged to consider changes to encourage the over-50s who had taken early retirement during or after Covid to return to work, saying he "would look at the conditions necessary to make work worth your while".

Not everyone believes that boosting pension allowances is the best policy to meet this goal.

"High earners with big pension pots do benefit from inappropriately generous tax treatment of pensions, but there are much better ways of restricting this than these crude limits." said Carl Emmerson, from the Institute for Fiscal Studies, a leading independent think tank.

Newsletter

Related Articles

London Daily
0:00
0:00
Close
Brave English woman hilariously mocks a masked thief as he attempts to steal her bike.
UK General Election: Sunak Acknowledges Disappointing Results but Maintains Confidence
Sword Attack Victim Henry De Los Rios Polonia Grateful for NHS Care
Post Office Lawyer Jarnail Singh Faces Allegations of Lying About Software Bugs
Post Office Scandal: Expert Accused of Giving False Court Testimony
Suspended Tory Councillor Puts Essex Council Majority at Risk
UK Government Loses Court Case Over Inadequate Climate Actions
Apple Faces Significant Sales Decline Amid AI Integration Delay
10,000 Black Cab Drivers Sue Uber for $313M Over Alleged Breach of London Booking Rules
Today’s headlines
Interns Investigate Unsafe UK Criminal Convictions
Contaminated Blood Inquiry Highlights Omitted Risks
Kwasi Kwarteng Criticizes Liz Truss as 'Trumpian'
SNP Overcomes Labour Confidence Motion
Study Finds Gender Health Gap in UK
Reform UK Endorses Conspiracy Theorist Candidates
Family's Deportation Fears Before Channel Tragedy
Labour's Compromise on Zero-Hours Contracts
Risk of Rwandan Deportation for Misclassified Lone Children
Sadiq Khan Accuses Tories of Undermining London
London Daily Morning Headlines - Wednesday, May 1 2024
Amazon Cloud Sales Growth Accelerates
Apple Recruits Google Staff for AI Development
Changpeng Zhao Sentenced to Four Months in Jail
S&P 500 Experiences Worst Month Pre-Fed Announcement
Columbia University's Hard Line on Student Protests
Biden Administration to Relax Marijuana Regulations
Netanyahu's Firm Stance Amid Rafah Hostage Talks
BlackRock to Establish Saudi Investment Firm
UK Food Delivery Firms to Check Riders' Immigration Status
Elon Musk Disbands Tesla’s Supercharger Team
Major Changes at Manchester United Under Ratcliffe
Rap Lyrics as Trial Evidence in England and Wales
Rap Lyrics as Trial Evidence in England and Wales
Monty Panesar to Stand for George Galloway's Party
Sadiq Khan Leads in London Mayoral Polls
UK Tory Chair on Party Funding
Brexit Checks to Increase Food Import Costs
Legal Challenge to Cuts in England’s Cycling and Walking Budget
Rising Homelessness in England
Potential Criminalization of Lying by Politicians in Wales
MPs Advocate for Work Rights for Asylum Seekers
Home Office Loses Track of Rwanda Deportees
Historic Memo Challenges Current UK Insurance Policy
London Daily's Video newsletter
Labour Axes 'Levelling Up' Phrase
UK Sanctions Ineffective Against Russian Economy
Humza Yousaf Resigns as Scotland’s First Minister
UK Plans Cuts to Disability Benefits
UK House Sales Increase by 12% in April
×