Jeremy Hunt‘s back-to-work pension overhaul could backfire and spark a rush to retirement, experts have warned.
The Chancellor abolished the £1.07million lifetime cap on tax-free pension savings in the Budget, as well as increasing the maximum annual contribution from £40,000 to £60,000.
The move is intended to stop senior NHS staff and others from retiring early, after complaints that the cliff edge on tax liabilities stopped it being worth carrying on in roles. It effectively rolls back cuts George Osborne made to the limits when he was Chancellor.
However, Labour has branded the £1billion measure a tax break for the ‘wealthy few’ and pledged to reverse it.
That has sparked fears that doctors have an incentive to top up their pension funds and then retire immediately if Keir Starmer looks set to win the next election.
Jeremy Hunt’s back-to-work pension overhaul could backfire and spark a rush to retirement, experts have warned
The Chancellor abolished the £1.07million lifetime cap on tax-free pension savings in the Budget, as well as increasing the maximum annual contribution from £40,000 to £60,000. The move effective reversed cuts George Osborne made when he was in No11
Rachel Reeves said the plan was a ‘bung’ for the richest 1 per cent in society and vowed to scrap it
Former pensions minister Sir Steve Webb said: ‘If people fear that a future government might overturn all of this, they will be likely to max out on their pension savings over the next year or two and then, where possible, cash out their pensions by retiring just prior to a change of government.’
Doctors’ leaders have welcomed Mr Hunt’s decision to scrap the lifetime pension allowance, which he said was necessary because ‘I do not want any doctor to retire early because of the way pension taxes work’.
Ministers believe the plan could save money overall by cutting the £3billion that the NHS spends each year on locum doctors.
Downing Street said official figures suggested that around a third of those hit by the pensions cap were likely to have been NHS staff.
The PM’s official spokesman said it was quicker to scrap the cap that to attempt to devise a bespoke scheme for doctors.
However, the respected IFS think-tank has cautioned that some might now choose to retire earlier because they are able to build up bigger tax-free pots more quickly. There are also concerns it could be exploited as a tax loophole, with pension funds exempt from inheritance tax.
The Treasury’s OBR watchdog assessed that the policy will boost employment by 15,000.
Shadow health secretary Wes Streeting called for the ‘crazy’ pensions cap to be axed in September last year, saying: ‘I’m not pretending that doing away with the cap is a particularly progressive move.
‘But it is one that sees patients seen faster, and will inevitably save lives. I’m just being hard-headed and pragmatic about this.’
But he insists he was only proposing abolishing the cap for NHS staff. Ms Reeves yesterday said the plan was a ‘bung’ for the richest 1 per cent in society and vowed to scrap it.
‘At a time when families across the country face rising bills, higher costs and frozen wages, this gilded giveaway is the wrong priority, at the wrong time, for the wrong people,’ she said.
A Tory source accused Labour of ‘rank hypocrisy’, adding: ‘They are all over the place on this.’
In the Commons, Work and Pensions Secretary Mel Stride said Labour had to choose between ‘political opportunism or standing shoulder to shoulder with our National Health Service and the millions of people up and down this country who depend upon it’.
Ms Reeves said Labour would support a ‘targeted scheme for doctors’ but said a wider lifting of the cap could not be justified.
Sir Steve, who was a Liberal Democrat minister in the Coalition government, said savers, including consultants, might retire just before a change of government after pouring as much money into their pensions as possible ‘over the next year or two’.
Shadow chancellor Rachel Reeves (pictured) vowed that a Labour government would reverse this week’s Budget pensions shake-up
The British Medical Association, which has been campaigning for the change, has said doctors are already postponing their retirement as a result of the announcement.
Dr Vishal Sharma, a cardiologist and BMA pensions committee chairman, welcomed the ‘decisive action’ by Mr Hunt.
He told BBC Breakfast the NHS has been ‘losing doctors ever since pension rules started to be tinkered with’.
Dr Sharma said the number of hospital consultants retiring early had tripled in the past decade, while the number of GPs quitting because of pension rules had quadrupled.
‘Hopefully those people will now start to stay,’ he said. ‘We’ve already had lots of people contacting us saying they want to cancel their retirements, we’ve had people who’ve already retired contact us saying they want to come back, so it’s looking positive, but we have to wait and see how it impacts.’
The PM’s spokesman said yesterday: ‘Firstly, a targeted scheme would take time to introduce when we don’t think we have time to waste. Equally it would have excluded valuable workers… for example senior medics in the armed forces.’
He added that consultants were ‘providing the best possible care to people in our hospitals, and I think anyone who has a family member in hospital would want the best possible care for their loved ones.’