Pension experts have called for pension tax reform to help meet Chancellor Jeremy Hunt’s call to get more people back into work, including older workers, to help Britain.
Mr Hunt was setting out his long-term vision for how to boost the UK’s economy.
In his first big speech since November’s Autumn Statement today, he said if companies cannot employ the staff they need, they cannot grow.
The Chancellor said: “High employment levels have long been a strength of the British economic model.” But he pointed out that around one-fifth of working-age adults are currently economically inactive.
Mr Hunt said: “Excluding students, that amounts to 6.6 million people – an enormous and shocking waste of talent and potential.”
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Getting more people back into work is a key aspect of the Chancellor’s long-term vision for the economy.
“This is good news for those older workers who exited the workforce during the pandemic and have not returned. Some decided to retire, others have struggled to find work, but the cost-of-living crisis means they need to come back.”
But there are key challenges that need to be addressed before the can return to the workforce, she warned.
She said: “Reform of the Money Purchase Annual Allowance will be vital for this group, so they don’t get hit with tax charges for trying to rebuild their pension.”
The Money Purchase Annual Allowance affects people who have flexibly accessed their pension. Instead of being able to contribute £40,000 per year they are limited to £4,000.
Ms Morrissey said: “Restricting pension contributions from £40,000 to just £4,000 per year acts as a real drag for many who are just trying to do the right thing and rebuild a robust income to see them through retirement.
“There’s also the chance that many people may inadvertently breach it and land themselves with a tax bill. The MPAA is an unnecessary complication in the system that stands in the way of people trying to rebuild their financial resilience and it should be reviewed.”
Andrew Megson, chief executive of My Pension Expert, criticised the Chancellor for a lack of detail in his speech.
Mr Megson said: “He told those who retired during the pandemic that ‘Britain needs you’, but he did not explain how he would attract people back into employment – something that still risks undermining the freedom Britons should have to enjoy their hard-earned retirement.”
He said financial planning is difficult when uncertainty hangs overhead, adding: “I would urge the Chancellor to focus on speeches of substance, not sweeping generalities, to help people navigate the challenges that lie ahead of them.”
