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United Kingdom Businesses The Almighty Buck

UK Treasury Is Giving Older People $90,000 a Year To Keep Working (bloomberg.com) 128

Posted by BeauHD from the work-to-live-or-live-to-work dept.
An anonymous reader quotes a report from Bloomberg: Convincing older British workers to stay in their jobs will cost the UK Treasury 75,000 pounds ($90,000) per person in tax breaks for some of the country's wealthiest savers, analysis of Chancellor of the Exchequer Jeremy Hunt's budget shows. In his budget speech on Wednesday Hunt scrapped the lifetime allowance on pensions -- the total that workers can pile into their retirement pot without incurring tax -- and increased the tax-free annual limit on contributions by 50%, to 60,000 pounds.

The shift is designed to reverse a trend in the number of older workers dropping out of jobs since the pandemic, which has contributed to a shortage of staff and is fanning inflation. But the Office for Budget Responsibility, the independent fiscal watchdog, calculated (PDF) that Hunt's pension reforms are likely to add just 15,000 more workers to the labor force by 2027/28. They will cost 1.1 billion pounds, meaning the reforms effectively offer a 75,000 pounds per person boost to those able to save enough in their pensions.
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UK Treasury Is Giving Older People $90,000 a Year To Keep Working More

UK Treasury Is Giving Older People $90,000 a Year To Keep Working

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  • The rich? Or the elderly? (Score:3)

    by e065c8515d206cb0e190 ( 1785896 ) on Wednesday March 15, 2023 @06:01PM (#63374107)
    Or the rich elderly?
    • I suspect we Americans will have difficulty understanding this proposal since we already don't have a lifetime cap on 401k or IRA contributions (the cap is annual). And the tax benefits of those certainly doesn't equate to whatever this means: "the total that workers can pile into their retirement pot without incurring tax."

      The article also doesn't say whether the estimated cost of the tax cut factored in an economic stimulus effect - i.e. that these would-be-pensioners will now spend more money because

      • The benefit is that the NHS stops seeing doctors retiring early because of this.

        Thats the entire point of Hunts changes.

        And these people arent "pensioners" in the traditional sense, its people that are being forced to retire at 55, 60 or whatever because otherwise they will end up with a huge tax bill if they retire later. Its literally people who can give another bunch of years service to the NHS, but are choosing to retire rather than have the dubious honour of having to pay a large tax bill just to work

        • Comment removed based on user account deletion
        • They're not going back to the NHS no matter how much much they can make because Jeremy Hunt has already buggered that up so badly they hate their jobs.

        • have the dubious honour of having to pay a large tax bill just to work longer.
          You do not have a "large tax bill" because "you work longer".

          If you work: your tax is mostly completely automatically deduced from your wages. And it as nothing to do with your age or length of period of your work anyway.

          My taxes - and yours - are exactly the same, regardless if you are 65 and I'm 55 or anyone of us is 75.

    • Iâ(TM)m not sure how rich one can be if you pay $90k/year in taxes.

      Note this is a tax deduction, $90,000/year is basically 2 civil servants per citizen.

      • People paying $90k/year in taxes never retire and are not in demand by job market. They are in need of waiters and other low wage jobs obviously.

  • to stop NHS doctors from receiving a tax charge (Score:5, Informative)

    by Joe_Dragon ( 2206452 ) on Wednesday March 15, 2023 @06:08PM (#63374125)

    to stop NHS doctors from receiving a tax charge for saving to much

    • Re:to stop NHS doctors from receiving a tax charge (Score:5, Informative)

      by Richard_at_work ( 517087 ) on Wednesday March 15, 2023 @06:51PM (#63374241)

      Precisely this.

      The NHS is losing doctors because they are hitting the Total Lifetime Allowance limit - their only option is to retire before they get hit, so they are.

      And right now, because the current government are arseholes, the NHS is bleeding doctors all over the place - they need these people to stay.

  • Governments validate Orwell daily (Score:3, Funny)

    by roman_mir ( 125474 ) on Wednesday March 15, 2023 @06:11PM (#63374135) Homepage Journal

    I love this doubleplusgood speak, where not taking away something = giving it.

  • Here in the United States we have something called 401k accounts where you can contribute money (pre-tax) and then withdraw that money in retirement and you have to pay tax on it then. Some people talk about 401k as being untaxed, but it's actually just not-yet-taxed. Is that what's going on here? In the short term you don't get the tax revenue, but in the long term you'll get it (with interest) or at least some of it?

    • Sounds about the same we can contribute to a pension tax free, but we pay income tax in our pensions later. But there are limits to how much tax free allowance you get per year, and also the size of the pot, which includes the growth of the pot, not just what you put in. So if pension grows very well you can find yourself with a tax bill. I think that's about the gist of it.

      • Re: Can someone from UK explain? (Score:5, Informative)

        by Richard_at_work ( 517087 ) on Wednesday March 15, 2023 @07:05PM (#63374289)

        Pensions in the UK are tax free to contribute to, but are treated like normal income when you draw from them at retirement - so ultimately you still pay income tax, its just deferred. This is so you can get growth in your pension fund using untaxed funds.

        The problem is, that pension fund is only allowed to grow to a certain amount (£1.07Million before these changes) before the excess becomes taxable - and the tax is due the moment you start drawing from the fund.

        So, imagine this - you have a good pension fund, it has grown to £1.2M at the point you decide to retire. Thats £130,000 above the TLA limit.

        If you take the excess as a lump sump, the tax bill is roughly £65,000.

        If you take it as income (including annuity, drawdown etc) over a time period, the tax bill is £32,500.

        Both of those tax bills are up front, not paid when you get the money.

        • In addition, under the NHS pension scheme the pot gets an annual revaluation. The increase in value can contribute to your annual limit, resulting in an annual tax bill (not deferred) based on money already paid in as well as your actual payments in the year.

        • Ok, so I'm really not understanding this.

          I hit the LTA at 55 with £1.07M in the pot. I retire, pay no tax that that point, and have £1.07M to live on for (say) 25 years, taxed as income.

          As above, but I keep in working for 5 more years. I now have that £1.2M pot. I pay £65k in tax, but I've just worked for 5 years and can save for that bill. Even if it comes out of the pot eventually, that's still £1.135M in there, and it only has to last 20 years.

          I really don't understand the d

          • You're still better off working

            No one likes to work for a paycut. You may be net positive overall but it still leaves you feeling shitty being penalised for doing what you always have done, especially at the end of your career when you're over working, a change in your conditions is often just the incentive you need to put both middle fingers up and head off to a life of watching daytime television.

    • That's more-or-less correct. However we had limits on how much you could put in both in a single tax year and over the course of your lifetime, and after that you'd lose the tax at the point of saving the money while still having to pay tax on withdrawals, making pensions a very bad financial investment beyond that point. Those are the limits being changed here.

      • Not just "put in", but also accrue in the pension pot - its a "total lifetime allowance" in the pension fund for you.

        If you go over this, then the moment you start drawing from the pension fund you can be hit with a large tax bill - ie if you are over the TLA by a certain amount, the moment you retire, the HMRC can hand you a £50,000 tax bill (figure pulled out of my arse because the actual amount is based on how much you are over) due immediately. Who has that sort of money on hand?

        This is what is c

        • This has nothing to do with "rich people" (another fantastic Slashdot headline designed to be divisive), and everything to do with people who have contributed a lot to their pension fund over the years.

          If you are approaching retirement with over a million pounds in your pension pot then by any reasonable definition you are rich, whether that money accumulated over a lifetime of contributions or betting perfectly on GME for a few days.

          This statement is completely independent of any other statements about whether someone has done enough of value in their life to deserve that kind of money. You can be rich because you earned it or rich because you got lucky, but you're still rich.

          • Re: (Score:2)

            by ranton ( 36917 )

            If you are approaching retirement with over a million pounds in your pension pot then by any reasonable definition you are rich

            Most people think of a million pounds being a lot of money, but in a retirement account near retirement age it isn't as much as people think. 4% is the standard used to determine how much of your retirement savings you should withdraw each year for income, which is $40k per year for a million in savings. Not many people think a $40k salary qualifies you as rich. I'm not sure what social security looks like in the UK, but a $40k per year payout is pretty standard in the US for someone who was a well-paid wor

        • If you go over this, then the moment you start drawing from the pension fund you can be hit with a large tax bill - ie if you are over the TLA by a certain amount, the moment you retire, the HMRC can hand you a £50,000 tax bill (figure pulled out of my arse because the actual amount is based on how much you are over) due immediately. Who has that sort of money on hand?

          Probably the people who have over 1 million GBP saved. If not, they can take out a loan if necessary.

          • Except it's not saved, as in, it's not in your bank account(s). You can't cash out your entire pension. If you could then the £50k or whatever tax bill you instantly get wouldn't be a problem as you'd have that in liquid assets.

            £1m in a pension pot does not mean you're a millionaire. It just means there's a fund you can draw from of that value, and you can only draw a certain amount per year.

            Think of it this way: you're employed at £50k a year with a guarantee that you'll be employed for 2

            • Then why not change the law to allow you to take money out of your pension to pay your tax bill? It seems like a convenient excuse to reduce the tax bill for the rich, while stating its so doctors can keep working.

              • Oh, I'm sure it's deliberate: reduce taxes for the rich and everybody else can work until they die.

        • Comment removed based on user account deletion

          • Problem being there's a shortfall in the "next generation" wanting to take up those jobs (one particular case: NHS doctors). A job that doesn't seem that attractive when those that are in that job are striking over pay and work conditions.

            • Comment removed based on user account deletion

              • Re: (Score:3, Insightful)

                by mrbester ( 200927 )

                That's the excuse that is given when their pay is below inflation for over a decade "oh, but it's a calling". Yeah, that's true, but people like to be paid fairly for the work they do. They aren't monks or nuns deliberately choosing a life by taking a vow of poverty and where the service is its own reward.

                • >That's the excuse that is given when their pay is below inflation for over a decade
                  How is that different from most people? By far most people in the world today are getting an annual raise less than the rate of inflation. Look around, get out of your bubble and talk to the common folk. It's hard to cry for the rich doctors when you look around. Not many folks getting wage increases even close to the inflation rate, and that's been true for a lot of years. Benefit costs have grown faster than wages as we

                • Comment removed based on user account deletion

        • Who has that sort of money on hand?

          Why can't you just draw that money down from your retirement fund and pay your tax bill with that?

    • Re: Can someone from UK explain? (Score:4, Informative)

      by gnasher719 ( 869701 ) on Wednesday March 15, 2023 @06:56PM (#63374259)
      Take 401k, and imagine there is a saving limit, and if you exceed the limit by $1000 you get a tax bill for more than $1000 the moment you retire. There are people (that we need) who stop working because working would actually cost them money. An absolutely idiotic problem that is now solved.
      • Comment removed based on user account deletion

        • You're focusing a lot on just pay, and not focusing enough on the fact the someone new does not provide the same value as someone experienced. This isn't manual labour. The people who are forced into early retirement are people with valuable experience and are being replaced by inexperienced fresh starters ... assuming they are available in the first place, which they are not.

          To put it another way, you're saying there's no downside to firing your experienced IT workers and outsourcing the entire department

        • The problem in the U.K. isn't that they have too many doctors. It is that they have too few doctors. According to the BMA, England has fewer doctors per 1000 (2.9 the entire U.K. is slighly higher at just over 3.0) than anywhere in the EU but Poland. Nearly 6% of all jobs for doctors are currently vacant. It is not as bad as the need for nurses (over 10% of nursing posts are unfilled), but it is still terrible. The reality is that most of the EU has a third more doctors per thousand than the UK does.

      • That doesn't sound like what other people are saying, they seem to say you get taxed on the $1000 that you are over. Sure you have to pay the tax on the $1000 if you withdraw $0.01 from the savings though.

        • The current rules are designed so your tax is as much or more than the money saved. They donâ(TM)t pay taxes on $1000. They pay $1000 in taxes on $1000. Because of the idiotic tax/pension rules these people get nothing for working. And if the employer doubled their salary, that would just make the loss worse.

  • "giving" (Score:2, Redundant)

    by backslashdot ( 95548 )

    By giving, they mean not taking. That's the government's version of giving.

  • The budget is based on how many people the government thinks will go back to work, not how many the Office for Budget Responsibility thinks. This makes the sum per person mentioned in the article meaningless.

    • Re: (Score:2)

      by ET3D ( 1169851 )

      To go by the article, "Hunt ... increased the tax-free annual limit on contributions by 50%, to £60,000", or an additional £20,000 per year. This means that, at most, the cost for one person is the tax paid on £20,000. If taxed at the maximal rate, 55%, this is £11,000.

      That's the maximum loss from this scheme per year per person, which is far from £75,000.

      In reality it will likely be much less than £11,000 per person. Also, the very rich actually have a lower limit, and n

  • UK Treasury Is Giving Older People $90,000 a Year To Keep Working

    Unless it's s refundable tax credit, they aren't "giving" it to you, they just stopped taking it from you. Not the same thing at all.

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