Over 50s look set for pension boost as Hunt considers tax reform

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The Government is considering raising the lifetime allowance (LTA) for pensions, as part of a drive to encourage the over-50s back into work. The pension LTA is a limit on how much a person can save into their pension across their lifetime tax-free.

The limit is set at £1,073,100, and if exceeded, Britons could face a hefty tax bill of 55 percent.

Many pensioners have already “unretired,” due to rising bills, however the Government is reported to have given further financial incentives for more to continue doing so.

The Treasury is exploring raising the annual allowance for all, which is currently set at £40,000 for everyone apart from the highest earners, meaning they could benefit the most from the change.

The plan could assist the NHS in retaining older doctors, with many considering early retirement over fears their pension pots were being taxed excessively.

Chancellor Jeremy Hunt is said to be considering the plan in a bid to address the rising levels of inactivity in his Spring Budget next month.

Hunt is looking to address inflation, along with getting more people into the labour market, which he feels is essential to driving growth.

The Government harbour concerns over the trend which they feel is hampering Britain’s economy.

While the idea is being considered, the Chancellor feels the downside could be the potential cost of the move, according to The Telegraph.

Hilary Salt, partner at First Actuarial LLP and Pension Playpen All Star, told Express.co.uk an increase to the LTA is likely to persuade retirees to return to work, not just to earn extra pay, but also to boost their pension.

However, she suggested there could be problems which may arise if such a policy were to be implemented.

She added: “As always, the problem with making ad-hoc changes to pensions taxation to address current challenges is that it becomes very complicated and can cause other unintended consequences.

“It would be better to conduct an overall review of pensions taxation.”

The LTA no longer just affects the very wealthy earners as it sits as £1,073,100.

Andrew Tully, technical director at Canada Life explained with the allowance repeatedly cut and now frozen, more will be caught through fiscal drag, where wealth rises but tax thresholds don’t.

“It’s a nightmare to navigate and puts people off saving,” Mr Tully said.

In a speech last month he committed to a “fundamental programme of reforms” to end the “enormous and shocking waste of talent and potential” Britain’s economy possesses.

Despite being of working age, some 8.9 million people in Britain are not in work, a 570,000 rise on pre-pandemic levels.

The figure includes those looking after families, students, stay-at-home mothers and carers, the long-term sick and early retirees.

Ministers were already considering raising the lifetime pensions allowance as many people, including NHS doctors, feel this figure is too high and opt to retire earlier as a result.

Mr Hunt’s reported exploration of the possibility of increasing the annual allowance comes after the Institute for Fiscal studies called for a substantial rise.

A report said: “There is good reason to doubt the usefulness of a limit on the amount an individual can contribute to a private pension in a single year.

“With a more rational tax treatment of pensions – and in particular one that limits the extent to which those who are not at risk of undersaving for retirement are able to receive an effective tax subsidy on additional pension saving – then the case for a constraining annual limit would be reduced further.

“We therefore recommend that it is made much more generous so that fewer people are affected.”

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