Boost for middle-class workers as Jeremy Hunt plans to raise pension cap

Jeremy Hunt will give middle-class workers a pension increase next week to encourage them to extend their careers into old age.

Whitehall sources said the Chancellor will use the budget to unveil “significant” increases in pension payments, blamed for forcing doctors and other professionals out of the job market.

The £1million lifetime allowance for tax-free retirement savings will see its first significant increase in ten years.

The ceiling of £40,000 on annual pension contributions will also be raised. Both steps aim to address the so-called “pension trap,” which can mean that some workers face penalties for continuing to work into old age.

It is said to have prompted thousands of doctors to quit and is seen as a major obstacle to encouraging them to return. When the government announced a six-year freeze on the annual allowance in 2020, the British Medical Association said it was “pushing doctors out of the NHS”.

Whitehall sources said the Chancellor will use the budget to unveil “significant” increases in pension payments

Helen Morrissey, pensions analyst at Hargreaves Lansdowne, said the increase in allowances is particularly helpful for those with terminal salary pension schemes.

But she warned against “tinkering with the edges,” saying a full overhaul of the pension system was needed to remove work incentives, such as .

“Lifetime pocket money is no longer a rich man’s issue,” she said. “Because of the way it’s been reduced over time, it’s now biting into a fair number of long tenure people, especially if they’re in a set benefit system.”

Former Tory Secretary Sir John Redwood added: “I have been very concerned at the loss of many senior doctors who say taxing their pensions is one of the major problems driving them out of the profession.

“This is going into the growth package because we need to keep more people in their 50s and 60s in work. But I’m hoping for a much broader package to boost growth when we hear from the Chancellor next week.’

The Life Allowance was set at £1.5 million when it was introduced in 2006 and rose to £1.8 million in 2010. It fell to £1m in 2016 after a series of cuts. It currently stands at £1,073,100, where it was due to remain until 2026.

The cuts have trapped large numbers of middle-class professionals. The maximum annual amount you can put into your pension hasn’t kept pace with inflation either.

It was cut from £255,000 to just £50,000 in 2012 and again to £40,000 in 2014, where it has remained. Mr Hunt hinted at the move in January when he said ministers were determined to get more people over 50 back into the workplace.

Mr Hunt is understood to have £9.2billion “leeway” – a tiny fraction of the £97.5billion forecast by the National Institute of Economic and Social Research

“To those who have taken early retirement after the pandemic or have not found the right role after furlough, I say ‘Britain needs you’ and we will look at the conditions needed to make your work pay “, he said. At the time, Treasury Department sources said that while Mr Hunt was attracted to the idea of ​​raising pension bonuses, there was “no money” in the budget to do so.

But a source said recent improvements in public finances meant the move would happen now. Mr Hunt is believed to have £9.2 billion in “headroom” – a tiny fraction of the £97.5 billion predicted by the National Institute of Economic and Social Research yesterday.

The pension restructuring is one of a range of ideas being considered as part of a major “jobs review” led by Work and Pensions Secretary Mel Stride, which will be released with the budget.

The number of unemployed has risen by around half a million since the pandemic, due to an increase in the number of over-50s exiting the labor market.

Labor shortages are blamed for driving inflation and contributing to the UK’s sluggish productivity growth. The government is resisting business pressure to relax immigration rules to offset the end of free movement with the EU.

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