Experts have warned that Chancellor Jeremy Hunt’s move to abolish the £1.07 million lifetime cap on tax-free pension savings in the budget and increase the maximum annual contribution from £40,000 to £60,000 could backfire and cause a rush to retirement.
The move aims to prevent senior NHS staff and others from retiring early due to the cliff edge on tax liabilities that made it not worth continuing in their roles.
However, Labour has vowed to reverse the £1 billion measure, calling it a tax break for the ‘wealthy few.’
The fear is that people will try to top up their pension funds and retire immediately if Keir Starmer looks set to win the next election.
Former pensions minister Sir Steve Webb has cautioned that people might retire earlier because they can build up bigger tax-free pots more quickly.
The respected IFS think-tank has echoed this concern, and there are worries that the policy could be exploited as a tax loophole. The Treasury’s OBR watchdog assessed that the policy would boost employment by 15,000.
Downing Street has said that the move could save money by cutting the £3 billion that the NHS spends annually on locum doctors.
Ministers have welcomed the decision to scrap the lifetime pension allowance, and doctors’ leaders have also applauded the move.
However, the British Medical Association, which has been campaigning for the change, has warned that doctors are already postponing their retirement due to the announcement.
Labour’s shadow health secretary, Wes Streeting, had called for the ‘crazy’ pensions cap to be axed in September 2022, but only for NHS staff.
In response to the announcement, Labour’s Rachel Reeves called the plan a ‘bung’ for the richest 1% in society and vowed to scrap it. A Tory source accused Labour of ‘rank hypocrisy.’
Work and Pensions Secretary Mel Stride challenged Labour to choose between ‘political opportunism or standing shoulder to shoulder with our National Health Service and the millions of people up and down this country who depend upon it.’
In conclusion, while the move aims to keep senior NHS staff and others in their jobs, it could backfire and lead to a rush to retirement.
There are also concerns that the policy could be exploited as a tax loophole, and Labour has pledged to reverse it.
Doctors’ leaders have welcomed the decision, while the British Medical Association has warned that doctors are already postponing their retirement due to the announcement.