Hunt warned pensions plan may not keep people in work

Economists also said on Thursday that households will feel “continuing pain” over the next year as earnings fail to catch up with high prices during a “lost decade” of living standards.

Mr Hunt used his Budget to abolish the tax-free cap on the lifetime pensions allowance, as he seeks to boost economic growth by decreasing the number of working-age adults opting to retire.

But Labour said it will reverse the “pensions bung for the 1 per cent” if it wins power, as the Institute for Fiscal Studies said it could cost up to £100,000 per worker kept on.

Paul Johnson, the think tank’s director, said removing the cap on the allowance standing at £1.07 million “won’t play a big part, if any, in increasing the number of people in work”.

The Office for Budget Responsibility (OBR) watchdog has estimated the policy could increase the workforce by 15,000 people.

However, Mr Johnson described the assumption as “optimistic” and and said it was disappointing that “over-generous aspects” of pension taxation were not being reined in, “not least complete freedom from inheritance tax”.

Mr Johnson was unable to say whether the policy would favour wealthy bankers over medics, but added: “I do think that if the fundamental problem it was trying to address was doctors, then it was a rather large sledgehammer to crack a very small nut, and a billion pound sledgehammer at that.”

Isaac Delestre, an IFS taxation researcher, added that some may “even end up retiring earlier” thanks to the policy because they will need to put away less to reach their savings goal.

He said those who will benefit are those with the ability to “build up very large pension pots” or who can contribute more than £40,000 a year to their pensions.

“Pension pots are entirely exempt from inheritance tax so those are additional subsidies that are going to be handed out to people making very large savings under these reforms,” he added.

It would have been “very easy” for the Chancellor to have come up with a bespoke pensions scheme to help retain NHS doctors rather than produce a “£1 billion giveaway to the richest”, according to Sir Keir Starmer.

“What Wes Streeting and I are clear about is there could have been a tailor-made approach for doctors but in the end we’ve spent £1 billion on the richest 1 per cent while everybody else is struggling with the cost-of-living crisis,” he told broadcasters.

“I think most people would say, ‘How on earth can that be a priority for the Government?'”

Economists at the Resolution Foundation also warned that the “unneeded tax break for wealthy pension savers” could see some workers choosing to retire early or using their now uncapped pensions savings to avoid inheritance tax.

Torsten Bell, the think tank’s chief executive, said: “It’s a big victory for NHS consultants but poor value for money for Britain.”

In the IFS’s assessment, Mr Johnson said projections suggest disposable incomes will be barely higher in 2027 than in 2017 in what he described as a “lost decade for living standards”.

“Finally, what households are going to feel over the next year will be continuing pain. Inflation may be coming down, but prices remain much higher than two years ago. Earnings haven’t caught up,” he said.

Labour vowed to “reverse” the abolition of the tax-free cap on the lifetime pensions allowance if it wins the next general election, and replace it with a scheme targeted at doctors rather than a “free-for-all for the wealthy few”.

Shadow chancellor Rachel Reeves said: “The Budget was a chance for the Government to unlock Britain’s promise and potential. But the only surprise was a £1 billion pensions bung for the 1 per cent, a move that will widen the cost-of-living chasm.

“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.”