Pension reforms to keep over-50s in work are being considered as Jeremy Hunt examines the idea of raising the lifetime allowance to lure back early retirees
- In speech today, chancellor called on older people to help ease labour shortages
- Hunt: ‘We will look at the conditions necessary to make work worth your while’
- Read more: Cabinet is split on Hunt’s plan to lift state pension age to 68 quicker
Pension reforms to lure over-50s back into the workplace are being examined by ministers.
In a major speech on the economy today, Jeremy Hunt called on older people who dropped out of the workforce in the pandemic to return to help ease chronic labour shortages.
Hinting at financial incentives, the Chancellor said: ‘To those who retired early after the pandemic or haven’t found the right role after furlough, I say: “Britain needs you” and we will look at the conditions necessary to make work worth your while.’
Whitehall sources said this could mean raising the £1million lifetime allowance on tax-free pension savings.
In a major speech on the economy today, Jeremy Hunt called on older people who dropped out of the workforce in the pandemic to return to help ease chronic labour shortages
Hinting at financial incentives, the Chancellor said: ‘To those who retired early after the pandemic or haven’t found the right role after furlough, I say: “Britain needs you” and we will look at the conditions necessary to make work worth your while’
This limit has been blamed for driving thousands of doctors and other professionals into early retirement.
‘We are looking at pension reform to ensure that people aren’t disincentivised from working longer,’ a source said.
The key objectives are to encourage people back into work – and deter them from leaving in the first place.
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The Government is also examining proposals to expand ‘mid-life MOTs’ to include pensions advice for people considering retiring early, amid fears that thousands are quitting the workforce without enough savings to properly fund their retirement.
A source said: ‘We want to get to a situation where if someone is thinking of retiring early they first sit down with a pension adviser and discuss whether it makes sense to retire.
‘At the moment, many find they either run out of cash or realise they can’t afford to live.’
The pension shake-up is one of a range of ideas being considered as part of a major ‘workplace review’ led by Mel Stride, who is the Work and Pensions Secretary.
Ministers are also looking at childcare reforms designed to make it more attractive for stay-at-home mums to return to work.
People with mental health and back problems will be given additional support to do whatever jobs might be suitable.
And ministers are considering tightening the benefits regime to make it harder for people to claim handouts when they could be in gainful employment.
Around 2.2million people registered long-term sick could face requirements to look for employment for the first time.
Mr Hunt said today that around five million working-age Britons were choosing not to work – a figure he described as ‘an enormous and shocking waste of talent and potential’.
He added: ‘We will never harness the full potential of our country unless we unlock it for each and every one of our citizens.
The UK has some of its lowest unemployment figures in half a century, but employment has also fallen, with a spike in people being classified as ‘inactive’
The number of people off work because of long-term sickness has increased by around half a million since early 2019, figures show
While the number of people economically inactive with posture-related problems has risen by 62,000, the number of people signed off with depression has returned to pre-pandemic levels, the ONS said.
‘Nor will we fix our productivity puzzle unless everyone who can participate does.’
The workless figure has risen by around half a million since the pandemic, driven by an increase in the number of over-50s dropping out of paid employment.
Labour shortages are blamed for driving inflation and contributing to the country’s sluggish productivity growth.
The Government is resisting pressure from business to relax immigration rules to offset the end of free movement with the EU.
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Mr Hunt today said that both business and the state must do more to ensure British workers had the skills they need.
But he also said the nation could not afford to have so many millions choosing not to work.
Ministers have been criticised for repeatedly raiding pensions by lowering tax thresholds to the point where many better paid employees are penalised for working into later life.
The lifetime allowance, which stood at £1.8million in 2012, has been cut in stages to its current level of just over £1million.
It is due to be frozen until 2026 despite the ravages of inflation.
At the same time, the annual allowance governing the tax-free total that workers can pay in to their pension each year has been slashed from £255,000 to just £40,000.
The limits have been blamed for forcing thousands of hospital doctors to quit in their late fifties and early sixties.
But professionals in other sectors are also now being hit, particularly those who enjoy final salary pensions.
Tory MP Dan Poulter said ‘punitive’ rules were making it ‘unviable’ for many doctors to continue working.
Treasury insiders said discussions remained at an early stage – and one questioned whether Mr Hunt would be able to act at the March Budget, given the tight constraints on the public finances.
In his speech today, the Chancellor acknowledged that Britain needed a tax cut but warned it would have to wait until inflation had been tamed.
He said he was ‘unlikely to have headroom for any significant tax cuts’ at the March Budget, despite pressure from Tory MPs and business.
Mr Hunt said the key economic focus this year would be tackling rising prices, saying: ‘The best tax cut right now is a cut in inflation.’
But he also acknowledged the need for further reductions in the record tax burden once inflation had been brought under control.
He said more than a million businesses had been created since 2010 but Britain would ‘need lower taxes’ to create the next million.
‘We should be explicit,’ he said. ‘High taxes directly affect the incentives which determine decisions by entrepreneurs, investors or larger companies about whether to pursue their ambitions in Britain.
‘With volatile markets and high inflation, sound money must come first. But our ambition should be to have nothing less than the most competitive tax regime of any major country. That means restraint on spending.’
Mr Hunt hit out at the ‘declinism’ peddled by Labour, saying that Britain was well placed to exploit ‘the growth sectors which will define this century’.
He said downbeat projections ‘do not reflect the whole picture’ and argued the economy was standing up well against key competitors.
Mr Hunt claimed ministers could boost the economy by tearing up the EU red tape holding back investment and productivity, saying that growth will be ‘built on the freedoms which Brexit provides’.
Mr Hunt’s speech had a mix reaction from business. CBI chief Tony Danker said he was right to ‘shift gear’ and focus on growth, adding: ‘He now has a strong framework for growth.
‘And we hope the Budget in less than two months will show strong actions.’
But Shevaun Haviland of the British Chambers of Commerce said there was ‘very little meat on the bones’.
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