The Chancellor of the Exchequer Jeremey Hunt will be delivering the budget and although the final figure has not yet been released, people are expected to be able to save up to £1.8m over a lifetime – this is an increase from currently £1.07m.
It’s thought the policy aims to stop people, particularly doctors, from reducing hours or retiring early owing to tax, however – critics say the move will only benefit a small fraction of the workforce, reports the BBC.
The British economy has proved more resilient than many expected, but there is a long way to go.
— Jeremy Hunt (@Jeremy_Hunt) March 10, 2023
Economic growth in the UK has flatlined in recent months and persuading workers to work for longer is part of plans in the UK to boost employment growth, with Wednesday’s announcement on tax and spending being labelled as the ‘Back to work Budget‘.
Consultancy LCP told the BBC that the government’s plans to raise pension tax allowances would benefit relatively few workers.
The number of people who have already breached the lifetime limit on pensions before paying tax and those who risk breaching it is 1.3 million, less than four per cent of the UK’s current workforce, it says.
The lifetime allowance is the total amount of money you can build up in a workplace defined benefit pension scheme and savings in a defined contribution pension before you face a further tax charge.
The tax is levied on the excess over the allowance and the state pension is not included in the calculation – anyone drawing their pension is still liable to income tax as normal.
How to check your state pension pot
You can get a state pension forecast online from the ‘check your state pension‘ service.
This provides personalised information, including your state pension age, an estimate of how much state pension you may get at that point and if you can increase this amount.
It also allows you to view your national insurance contribution history.
What is the average UK state pension pot?
After a lifetime of saving, the average UK pension pot stands at £37,600 for those aged between 55 and retirement age.
This puts the average UK pension pot’s income at around £12,000 a year (including a full state pension), ‘well below’ what is needed for a moderate income in retirement, reports The Telegraph.
Dean Butler, managing director for customers at insurance firm Standard Life, told the BBC that middle earners had been increasingly affected by the cap.
Any increase in the annual allowance, he said, would be of specific help to those with irregular earnings who were relying on making larger pension contributions later in their careers.
In the medical profession, some doctors and consultants have reduced their hours or retired early from the NHS because they were in danger of breaching the tax-free pensions lifetime allowance, and they calculated that continuing to work was counterproductive for their finances.
The annual tax-free pension allowance – which is also expected to increase from £40,000 to £60,000 each year – has been subject to much of the same debate.