London Daily

Focus on the big picture.
Tuesday, May 13, 2025

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

0:00
0:00
Close
Poland Tightens Immigration Policy with New Plan to Suspend Asylum Law
Trump says it would be 'stupid' not to accept gift of Qatari plane
8-Year-Old Orders 70,000 Lollipops Using Mother’s Phone, Prompting $4,200 Amazon Bill and Viral Facebook Plea
Quantum Computing Threatens Bitcoin Security
American citizens account for 70% of worldwide pharmaceutical sales despite comprising only 4% of global population
New Details Emerge on Syrian Attacker's Motives in German Festival Stabbing
UK Introduces New Immigration Policy to Reduce Net Migration
Brazil’s President Aims to Strengthen Ties with China Amid US Trade Tensions
Senate Democrats Move to Censure Trump Over Qatar Jet Gift
First White South Africans Resettled in the U.S. Amid Controversy Over Persecution Claims
Hamas Releases Last Living US Hostage from Gaza Amid Ongoing Conflict
India and Pakistan Agreement on Ceasefire Amid Ongoing Tensions
Arsenal Stages Comeback to Draw 2-2 Against Liverpool in Premier League Clash
Trump's Upcoming Visit to Gulf Nations: Investment and Security at the Forefront
Rodrigo Duterte Awaits Trial at The Hague. Next week he might be elected mayor of his hometown
Trump fires director of U.S. Copyright Office, sources say
Retired British police officer arrested over ‘thought crime’ tweet
Cardinal Robert Prevost Elected as Pope Leo XIV, Marking a Historic Papacy
Newark Mayor Ras Baraka Arrested at ICE Facility Amid Congressional Visit
India-Pakistan conflict may be first test for Chinese military tech
Bill Gates Announces Plan to Wind Down Philanthropic Foundation and Disperse Wealth
Historic Papal Conclave Set to Commence in Rome
Huge Copper, Gold, and Silver Discovery in Argentina and Chile — But the Profits Go Abroad
Prince Harry is pleading for reconciliation — but the royals are just as sick of his victimhood as everyone else
The Road to Freedom: She Protested Putin, Escaped House Arrest, and Survived a 2,800-Kilometer Journey
OpenAI's Flip-Flop: No Longer Going Commercial, Back to Nonprofit, After Musk Lawsuit and Backlash
“Trump Supporter” Aims to Bring a MAGA-Style Shift to Romania
First From China: Zhao Xintong Wins the Snooker World Championship
Nvidia Faces Billion-Dollar Losses – Warns: China Is on Its Way to Becoming an AI Superpower
Trump Rules Out Third Term, Names JD Vance and Marco Rubio as Potential Successors
Mexico Says ‘No’ to U.S. Troops: President Sheinbaum Rejects Trump’s Offer to Fight Cartels
Nigel Farage’s Reform UK Storms the Map, Wrecking the Two-Party Monopoly
DOGE: Reimagining Government Operations with AI
Common Sense Returns to Britain's Legal System: UK Supreme Court Declares a Woman Is… a Woman
Beijing Says U.S. Is ‘Reaching Out’ for Tariff Talks Amid Soaring Trade Tensions
U.K. Court Rejects Prince Harry’s Final Appeal Over Police Security
Prince Harry’s Heartfelt Outburst Rocks the Royal Family
Trump Shares AI-Generated Image of Himself as… Pope, Prompting Outrage Reaction
Transgender Swimmer Secures Five Gold Medals at U.S. Masters Championship
Prince Harry: “I Want Reconciliation with My Family”
Germany's Alternative für Deutschland (AfD) party has now been officially labeled “right-wing extremist” by the federal office for the so-called “protection of the constitution.”
Amazon Launches Satellite Internet Service Amidst Competition with SpaceX
Transformative Changes in Women's Wrestling: The Rise of WWE Superstars
The Rush to the White Gold: Global Investment Surge in Natural Hydrogen Exploration
This is a day in Spain without electricity and internet
Reform UK Surprises in British Elections, Challenging Traditional Two-Party System
180-Year-Old Christian University in South Carolina Announces Closure Due to Unmet $6 Million Fundraising Goal
Brazilian Woman Jailed for Fourteen Years for Writing “You Lost, Idiot” on Statue During Protest
Trump Administration Removes National Security Adviser Mike Waltz Amid Signal Chat Controversy
Dutch Politician Eva Vlaardingerbroek Receives Spyware Threat Alert from Apple
×