Jeremy Hunt’s ploy to get over-50s back to work is doomed to fail
Chancellor Jeremy Hunt’s pension reforms will fail to get over-50s who have already retired back to work, experts have warned.
The lifetime allowance, which caps the amount that people can save tax-free into their pension at £1.073m, will be abolished entirely from April 2024, as part of the Government's campaign to lure over-50s back into the workforce.
Mr Hunt will also increase the annual allowance, which limits how much workers can save tax-free into their pension each year, from a maximum of £40,000 to £60,000.
It comes as the Governor of Bank of England blamed rising interest rates on economic inactivity among the over 50s.
However Mr Hunt's reforms offer little incentive to those who have already retired, new figures suggest.
More than 80pc of retirees over 50 said the new tax breaks would not get them back to work, a poll by the broker Interactive Investor found.
Around half of those surveyed said they enjoyed retirement and had no intention of ever returning to the workforce.
Allan Barresford, a 62-year-old from Nuneaton, retired at age 59 after working for four decades at Rolls Royce. For him, the pension tax reforms have arrived too late.
“I am comfortable with the way that I live now,” he said. “People live the life they want when they retire early. For me, I do volunteer work, giving something back to the community. I enjoy my hobbies, and spend time walking and visiting people. Personally, these reforms will not get me to come back to work.”
Rebecca O’Connor, of the provider PensionBee, said that for thousands of pensioners like Mr Barresford, who had already planned out their retirement, the new tax breaks offered little incentive to take on more work again.
“You might go back to work for other reasons, to stay engaged and keep busy, but if you already have a sufficient pension then you will be in wealth preservation mode, not wealth building mode.”
Ms O’Connor noted that the pension tax rules primarily affected NHS doctors. “Most people have a ‘defined contribution’ pension, which means that you could have simply altered your contributions if you were approaching the limits.”
NHS doctors are members of generous defined benefit schemes, which means they are unable to directly control how much money goes into their pension. The only way to avoid large, unexpected tax bills has been to reduce working hours or retire early.
Overall, the changes to the lifetime allowance and annual allowance are only expected to increase employment by around 15,000, according to forecasts by the Office for Budget Responsibility. Most of these people will be doctors.
While experts question the efficiency of the reforms in stemming early retirement, Andrew Bailey has blamed early retirees for pushing up inflation.
The Governor of the Bank of England said that a sharp decline in the workforce was “part of the reason why we have had to raise the Bank Rate by as much as we have".
Mr Bailey noted that the rise of economic inactivity among people aged 50 to 64 was “particularly striking”.
However, Ms O’Connor said that this “pinned a lot on older workers”. Official data has shown that the main driver behind rising economic inactivity is the number of people classed as “long-term sick”, up from 36,000 in the summer of 2020 to more than 352,000 at the end of last year.
“This rhetoric paints early retirement as morally wrong – but if you can, then why wouldn’t you?” she said. “There are few incentives that the Government can offer that are as good as being retired early.”
The Treasury was approached for comment.