Chancellor Jeremy Hunt’s Budget Proposal Aims To Encourage Longer Working Years

Chancellor Jeremy Hunt will unveil his first budget on Wednesday to address the UK’s worker shortage. One of his proposals to grow the economy is to encourage people to work for longer. To achieve this, Hunt will announce a rise in the tax-free pension allowance to discourage early retirement.

The Chancellor wants people who are able to work and not working to return to work and those currently working to work longer if possible. He plans to increase the amount people can put into their pension without paying tax, known as the lifetime allowance, which is currently set at £1 million. Jeremy Hunt will increase this significantly, according to reports. This move aims to prevent early retirement and encourage those nearing retirement age to work more hours. This proposal addresses the issue of doctors and consultants who find it financially unviable to continue working.

Back-to-Work Budget

The Chancellor’s budget is being called a back-to-work budget because it addresses why half a million people left the workplace in recent years. One of the proposals already trailed is a significant increase in the amount people can pay into their pensions tax-free annually and over a lifetime. This move redresses changes that led doctors and other professionals into early retirement.

Expected Increase in Lifetime Tax-Free Limit on Pension Schemes

The government plans to increase the total amount people can accumulate in their pension pots before paying extra tax. The expected increase is from just over £1 million to £1.8 million over a lifetime. This is part of the government’s efforts to persuade people to stay in and work for longer.

However, critics argue that this move will only benefit a small fraction of the workforce.

Raising Tax Relief for Pensions

The government wants to provide tax relief for pensions to encourage people to save. This means that if a person saves into a private pension, the government will give an extra £20 for every £80 a person puts in, totaling £100.

However, the UK government wants to set a limit on tax relief. In 2006, Gordon Brown, as Chancellor, set the limit at £1.8 million, which successive chancellors, including George Osborne, have cut in the past decade.

The current limit has caused high-paid people like doctors to bump up against it, as their pension pots are worth more than £1 million.