Convincing older British workers to stay in their jobs will cost the UK Treasury £75,000 ($90,000) per person in tax breaks for some of the country’s wealthiest savers, analysis of Chancellor of the Exchequer Jeremy Hunt’s budget shows.
(Bloomberg) — Convincing older British workers to stay in their jobs will cost the UK Treasury £75,000 ($90,000) per person in tax breaks for some of the country’s wealthiest savers, analysis of Chancellor of the Exchequer Jeremy Hunt’s budget shows.
In his budget speech on Wednesday Hunt scrapped the lifetime allowance on pensions – the total that workers can pile into their retirement pot without incurring tax – and increased the tax-free annual limit on contributions by 50%, to £60,000.
The shift is designed to reverse a trend in the number of older workers dropping out of jobs since the pandemic, which has contributed to a shortage of staff and is fanning inflation.
But the Office for Budget Responsibility, the independent fiscal watchdog, calculated that Hunt’s pension reforms are likely to add just 15,000 more workers to the labor force by 2027/28.
‘Huge Giveaway’
They will cost £1.1 billion, meaning the reforms effectively offer a £75,000 per person boost to those able to save enough in their pensions.
Labour leader Keir Starmer said the policy was a “a huge giveaway to some of the very wealthiest.” His party pledged to reverse the cut and instead create a targeted plan for doctors.
The policy was also quickly criticized by some economists, as well as the opposition Labour Party, which portrayed it as a massive tax cut for rich workers.
But it was welcomed by doctors — among the high-earning workers who often reach the limits of the previous allowance. “The rise in the annual allowance will mean far fewer doctors will receive large punitive pension tax bills and will significantly reduce the perverse incentive to reduce hours due to pension tax,” said Vishal Sharma, chair of the British Medical Association’s pensions committee.
Read more: Jeremy Hunt Looks to Bring UK’s Older Workers Back Into Jobs
Childcare Impact
Currently, around 8,000 people have more than the £1.07 million lifetime allowance in their pension pots. They will be the main beneficiaries of Hunt’s decision to scrap the limit – plus any others who had already stopped saving before they hit the cap.
Hunt’s much-anticipated child care reform, also announced in the budget, is about £10,000 cheaper per person and will bring 85,000 more workers into the labor force, according to OBR calculations. The policies will cost about £5.4 billion.
In an interview with Bloomberg TV, OBR chairman Richard Hughes said “it’s not for me to say” whether Hunt’s pensions reforms were a good use of money.
“As a result of the policy measures you see in the chancellor’s budget, we think overall employment will be up by 110,000 by the end of our forecast,” he said. “Most of the work in the budget in terms of getting people back into work is actually done by the childcare measure.”
Doctors
Phil Sidebottom, head of financial planning at wealth manager WH Ireland, said it was “undoubtedly good news for those with already large pension funds.”
Hunt said his pensions changes would help keep doctors in the National Health Service, which is currently struggling through an enormous patient backlog, and said the issue was “wider than doctors.”
“I have listened to the concerns of many senior NHS clinicians,” Hunt said as he delivered his budget to Parliament, adding that his changes would “stop over 80% of NHS doctors from receiving a tax charge.”
“No one should be pushed out of the workforce for tax reasons,” Hunt said.
(Updates with Labour plan to reverse pension move in sixth paragraph.)
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