“The Resolution Foundation report makes no mention of this transition – or indeed the level at which the cap should sit – and yet it would be absolutely critical in determining the overall impact of the policy. It also doesn’t say anything about the potential consequences to retirement saving incentives that would flow from this policy."
Earlier this month, the Institute for Fiscal Studies (IFS) set out "controversial" proposals to reform the pensions tax system, including reforming the 25 per cent tax-free component.
The IFS said the current system of pensions tax does relatively little to support many of those facing low income in retirement, who most need it.
It argued that reducing limits on pension saving – the route taken in recent years – is not a good solution.
As part of the reforms, it suggested removing the 25 per cent tax-free component to provide a more equal subsidy to all private pensions, benefiting those with a low retirement income.
Improving job quality
The Resolution Foundation's report also argued that policymakers and employers should focus on improving job quality.
“We encourage policy makers to work with pension providers to consider how these conditions can be relaxed, so that affected workers are not discouraged from returning to employment”, it said.
“We know that work intensity has increased in the past few decades, particularly in lower-paying jobs in which older workers are overrepresented. The proportion of employees in the lowest-earning quartile who agree or strongly agree that they work 'under a great deal of tension' has risen from 35 per cent to 50 per cent between 1992 and 2017.”
In the chancellor's Autumn Statement last year, he announced that the government's plans to limit how much an individual in England will pay for their own social care were delayed by two years.
The reforms were first outlined in September 2021 by then-prime minister Boris Johnson, and were due to come into effect in October 2023.
However, chancellor Jeremy Hunt said the cap will now come into effect in 2025. The cap will ensure that nobody pays more than £86,000 for social care in their lifetime.
Responding to the think tank today, a government spokesperson said: “We recognise one of our biggest challenges is how to support people to start or return to work, which is why the department is thoroughly reviewing workforce participation to understand what action should be taken on increased economic inactivity.
“As part of this work, we’re looking at plans to improve support for disabled people and people with long-term health conditions, as well as investing an extra £22mn in employment support for the over 50s.”
