Jeremy Hunt has been slammed for a “hokey-cokey” approach to pensions making it tougher for savers to plan. It comes as he is set to give a major boost to people saving for their pensions during his budget this afternoon, with the tax-free allowance set to be increased from £1.07million to £1.8million – the joint highest level on record. However pension experts have slammed the Government for penalising up to 1.6million savers after cutting the allowance.
Mr Hunt is expected to announce the savings boon as part of a mass back-to-work drive for Britain, with the country’s workforce still almost half a million smaller than before the Covid pandemic.
The lifetime tax-free allowance is set to rise from £1.07million up to £1.8million in an attempt to discourage the over-50s from retiring early.
Nearly two million people will benefit from the change, which is hoped will deal with the issue of doctors and other white-collar professionals retiring early.
Increasing the allowance could mean people avoid paying up to £180,000 in tax on their pension pots when they withdraw money.
The Government will also raise the annual allowance people can save each year before being taxed from £40,000 to £60,000.
Despite the good news, pensions experts have condemned the Government’s “hokey-cokey” around pension taxes.
The centre-right Centre for Policy Studies think-tank said the Government’s previous decision to lower the pensions cap from £1.8million in 2011 to £1.07million by 2016 has “hastened the retirement of some older workers.”
Experts said the constant changing is unfair to those preparing for retirement, with 1.6million savers thought to have cut or stopped pensions contributions since the allowance was slashed.
READ MORE: State pension warning as 8.5million to see retirement age rise
Employees near retirement will now be unable to make up for the years they would have otherwise been saving, potentially costing them hundreds of thousands of pounds in pensions tax credits.
The change today will be the fourth time the threshold has moved in a decade.
Tory peer Baroness Altman says it is a “symptom of a system that is not working properly and needs radical reform”.
“It’s a hokey-cokey, up-and-down, Grand Old Duke of York type of approach to pensions – and it isn’t working.”
Chartered financial planner Gianpaolo Mantini said the constant changes “don’t give anyone saving for heir retirement peace of mind that they can make plans, and they won’t have the rug pulled out from underneath them”.
Experts also warned that savers who exited defined pensions schemes over fears they were about to hit the threshold are unlikely to be allowed to rejoin them.
Despite the criticism that the Tories created the pensions problems they’re now proudly rectifying, there has been widespread support for today’s expected changes.
Retirement analyst at Hargreaves Lansdowne Helen Morrissey says raising the allowance will be particularly helpful to those with final salary pension schemes.
“The lifetime allowance is not a rich person’s issue any more … Because of the way it has been reduced over time, it is now biting on a whole range of people who have long service, particularly where they are in a defined benefit scheme.”
Some Tory MPs had dubbed the cap a “doctors’ tax”, citing doctors in their own constituencies who had taken early retirement because of the current saving incentives.
Trying to get doctors to stay working for longer will also help Jeremy Hunt’s hope of increasing Britain’s workforce by reducing long-term sickness.
The number of people off work due to long-term health conditions now stands at over 2.5 million, according to the ONS.
This is thought to be linked to the record NHS waiting lists.