Pension cap set to rise: Huge boost for Britons as 'significant' change planned
Chancellor Jeremy Hunt is set to announce the pension boost in the Budget
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Workers are set to receive a huge pension boost next week as Jeremy Hunt unveils his "significant" plans to encourage Britons to extend their careers.
Whitehall sources claim that the Chancellor will use the Budget to increase pension allowances that are blamed for driving doctors and other professionals out of work.
The new £1million lifetime allowance on tax-free pension savings is the first of its kind in a decade.
In addition, the £40,000 cap on annual pension contributions will also be increased.
The pension rise is the first of its kind in a decade
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The move hopes to tackle the “pension trap” which can leave some professionals facing tax charges if they work in their later life.
It is thought to have forced thousands of doctors to quit when the Government announced a six year freeze in the annual allowance in 2020, which the British Medical Association said would “push doctors out of the NHS”.
Helen Morrissey, retirement analyst at Hargreaves Lansdowne, said increasing the allowances was particularly helpful to those with final salary pension schemes.
But warned against “tinkering around the edges”, as she explained that a full review of the pension system was needed to remove disincentives to work.
“The lifetime allowance is not a rich person's issue anymore,” she said.
“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.”
Tory former minister Sir John Redwood added: “I have been very worried about the loss of a lot of experienced doctors, who say that taxation of their pensions is one of the big issues driving them out of the profession.
“This feeds into the growth package because we need to keep more people in their fifties and sixties in work.
The moves hopes to encourage professionals such as doctors to stay in work
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“But I am hoping for a much more comprehensive package to drive growth when we hear from the Chancellor next week.”
The lifetime allowance has dwindled from £1.5million when it was introduced in 2006 to £1,073,100 where it was due to remain until 2026.
The cuts have forced a large number of middle-class professional into the tax trap.
In January, Hunt hinted at the move when he said: “To those who retired early after the pandemic or haven't found the right role after furlough, I say: 'Britain needs you,' and we will look at the conditions necessary to make work worth your while.”
Figures for those not working has risen by around half a million since the pandemic, driven by an surge in over-50s leaving work.