The Chancellor of the Exchequer Jeremy Hunt will deliver his Spring Budget today and whilst he has played his cards close to his chest, he will likely announce measures to encourage the recently retired back into work.
The Government has hinted at yet further increases to the pension age and the promise of a free healthcare MOT but they are unlikely to be enough to encourage early retirees back into work. Rhian Radia Partner and Head of the Employment team offers the Chancellor the following advice.
The Government is concerned that the increasing number of economically inactive people over the age of 50 is acting as a drag on economic growth and productivity. Whilst poor health may force early retirement, it is a more complex picture.
The experiences of the Covid pandemic and confidence in retirement planning have inspired conscious decisions to adopt a different way of living. A multi-faceted approach is needed where the recently retired are incentivised to return to work with employers encouraged to play their part.
The pensions lifetime allowance, currently £1,073,100, is without doubt very generous. But for high earners who reach that allowance in their early 50s, it does act as a disincentive to work given punitive tax rates. Those that exceed the lifetime limit face a 55% tax rate on any lump sum taken from their pension and a 25% tax rate once they draw that pension.
The Chancellor could remove or lift that pension lifetime allowance encouraging those that have reached or who are close to that limit to continue to work and make pension contributions.
The Government’s promise of a personal healthcare MOT for recently retired is not quite as encouraging as it sounds. It is, after all, something that is often easily available via a GP or private healthcare provider. Tax-free medical benefits linked to employment are likely to be a greater incentive, particularly given the acute pressure currently facing the NHS.
It is not uncommon for the recently retired to spend time caring for grandchildren – they are often a vital and preferred lifeline for working parents. Whilst greater support towards childcare is promised, it could be accelerated making that support more generous, leaving parents less reliant on grandparents for childcare support.
Employers too should play their part, and the Chancellor should look to how Government can support and encourage businesses in hiring an older workforce.
A smart move would be to reduce the National Insurance rate for employers for those employees aged over 55 and who have been out of work for six months or more, perhaps for a period of 12 or 24 months. The cost to Government would, of course, need to be weighed up against the tax revenues and productivity gains.
Whilst many employers now offer flexible working, the laws around flexible working could go much further.
A right to work flexibly would allow those considering early retirement to make a transition over a number of years yet continue to work. Such a right does not, of course, mean that everyone over 55 will want to work part-time or flexibly.
It is also a fact that for many over 50s who are looking for work can find it difficult to secure a good or fulfilling role. Age discrimination can be very subtle but the cases are happening.
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The above is accurate as at 15 March 2023. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.