Top earners put retirement on hold after generous pension rule changes

The Chancellor’s bid to lure high skilled professionals like doctors to keep working appears to be paying off, new research shows.

Two thirds of top earners are considering working for longer and one in five who had retired plan to return to work as a result of pension reforms announced in the Budget, it found.

Jeremy Hunt ditched the £1,073,100 total limit people can have in their pension pot without facing tax penalties from April, and increased the standard annual amount you can save from £40,000 to £60,000.

Savings rules relaxed: Higher paid professionals, most notably much-needed experienced doctors, were opting for early retirement rather than face tax penalties

This is ‘having the desired effect’, according to a survey of 2,000 affluent workers by wealth manager Saltus about their response to the pension tax changes.

These ‘high net worth’ workers – who have at least £250,000 of assets available to invest and an average net worth of £1.6million – are putting retirement on hold as a direct result of the changes to pension allowances.

The Saltus survey found the following.

– Some 67 per cent of top earners are considering working for longer than they had originally planned or not retiring early because of the opportunity to save more after the abolition of the lifetime allowance.

 – Among people who are ‘high net worth’ and work in the health sector – the main target of the Government reforms –  the number considering staying in work longer rises to 76 per cent.

· Some 19 per cent of those not currently in work are already planning a return to work due to the axing of the lifetime allowance and, a further 35 per cent are considering it.

– Before the annual allowance change, 45 per cent of those surveyed said they were investing the maximum £40,000 each year into their pension, and 42 per cent will continue to do so at the new £60,000 limit. That suggests that this group were restricted by the old rules.

Saltus says Hunt’s pension tax overhaul was a bid to tackle fears that the old pension tax allowances were encouraging many professionals, particularly doctors, to retire in their 50s.

‘It was hoped the reforms would encourage highly-skilled workers – particularly senior NHS doctors – to remain in and return to work. 

‘Four months on from this announcement, and in addition to the historical 15-year plan to tackle staff shortages in the NHS announced by the Government at the end of June, new research suggests it is starting to have the desired effect.’

Partner Michael Stimpson adds: ‘The latest Saltus Wealth Index reveals a significant and positive response from high net worth individuals to the Government’s removal of the lifetime allowance cap on pension contributions. 

‘We have seen a huge number of clients come to us on the reforms, eager to ensure they have the right plans in place that will enable them to realise their long-term retirement ambitions.

‘We also note an increase in confidence, with 71 per cent expressing optimism about the UK’s economy. 

‘While concerns about inflation persist as a primary risk, high net worth individuals remain positive about their personal finances, with 82 per cent expressing confidence in the next six months.’

Why scrap the pensions lifetime allowance? 

A lifetime allowance that failed to keep pace with inflation, wages and growing pension pots triggered unintended consequences.

Higher paid professionals, most notably much-needed experienced doctors, are opting for early retirement rather than face tax penalties for overshooting it.

The government wants to keep older people in the workforce, and gave them a pensions sweetener as encouragement.

The changes mean there is no limit to how a pension pot can grow without tax penalties being applied.

What about the annual allowance? 

The annual allowance is the standard amount you can put in your pension every year and qualify for tax relief on what you saved.

It is currently £60,000, or up to 100 per cent of your annual earnings if they are lower than this.

The annual allowance includes your own and your employer’s contributions into a pension, and the tax relief itself.

> Read our guide to the annual allowance and the abolition of the lifetime allowance 

This post first appeared on Dailymail.co.uk