Pensions likely to be key to 'back to work' budget

Britain's finance minister is reported to be considering allowing a new high ceiling on the amount people can save for their retirement before they start paying tax on it.

Chancellor of the Exchequer Jeremy Hunt will announce what is already being dubbed his "back to work" budget on Wednesday, setting out the government's financial plans, and changes to the lifetime pension allowance are heavily tipped to feature prominently.

The LTA was introduced in 2006, and set at 1.5 million pounds ($1.825 million), peaking at 1.8 million pounds in 2012, since when it has been gradually rounded down to its current figure of just over one million pounds, where it was expected to stay until 2026, but it seems that Hunt may bring forward the date for change.

The Times newspaper reports that it could be restored to the 2012 peak, saying it will be closer to 1.5 million pounds.

Speaking in January, Hunt said that employment levels lower than before the COVID-19 pandemic meant there was an opportunity and a need for people to return to the workforce.

"So, to those who retired early after the pandemic, or haven't found the right role after furlough, I say: Britain needs you," he said. "And we will look at the conditions necessary to make work worth your while."

One sector that has been particularly hard-hit by the current LTA rate is healthcare, where staffing is a major political issue in the United Kingdom. Doctors' union the British Medical Association said the rates have encouraged many doctors to quit.

"High contribution rates, significant pay erosion, and a punitive pension taxation system have resulted not only in an exceedingly high cost of scheme membership for senior doctors, but also in them receiving reduced pension benefits," said a statement on the BMA website. "This has resulted in large numbers of doctors retiring early or reducing their hours."

Supporters say it would give an incentive to those who retired early to return to work, as they could increase their savings, and also boost economic output, with The Times calling it a "pension pot boost for two million people". But critics have said it will mainly benefit those least likely to be affected by the cost of living crisis.

Carl Emmerson, from independent think tank the Institute for Fiscal Studies, expressed doubts over the policy's effectiveness. "High earners with big pension pots do benefit from inappropriately generous tax treatment of pensions, but there are much better ways of restricting this than these crude limits," he told the BBC.