PHILIPPA: Hi, I’m Philippa Lamb and welcome to a bonus episode all about the Autumn Budget and what it could mean for you and your finances. Now, as always with the Budget, it’s about the detail behind the headline announcements that often reveals what they could actually mean in practice. So the PensionBee team has been busy ever since last week, reading the fine print and analysing the implications. And former Times Journalist Annabelle Williams is here, she’s going to run us through the most important changes. She’s brand new to her Spokesperson role at PensionBee and this is her first time on the podcast. Hi, Annabelle.
ANNABELLE: Hi, Philippa.
PHILIPPA: I’m really sorry to throw you in the deep end with a whole Budget episode!
ANNABELLE: No problem.
PHILIPPA: The usual disclaimer before we start, please remember anything discussed on the podcast should not be regarded as financial advice or legal advice. And when investing, your capital is at risk.
Annabelle, I thought it was great to see a Budget delivered by our first ever female Chancellor.
ANNABELLE: Same! To think that it’s been 300 years since the first Budget and this is the first time it was delivered by a female.
PHILIPPA: Yeah, it was a historic moment. What was your first thought when she sat down, when she’d said it all? What was your first thought about the whole thing?
ANNABELLE: I mean, honestly, it was how long it was. So we’d placed bets in the office beforehand on how long we thought that she was going to be speaking for, and most people thought it’d be quite a lot shorter. In the end, her speech was an hour and 15 minutes, which actually is quite long compared to what we’ve been used to in recent years.
PHILIPPA: And it was a packed chamber, wasn’t it? So many MPs.
ANNABELLE: Yeah, yeah. And so many changes, so many little changes to all sorts of areas that we’re all going to have to digest.
PHILIPPA: We’ve had, well, nearly a week now to see what the response to the Budget has been. And obviously, different sections of society have different ideas. We’ve got the financial markets, we’ve got business, we’ve got the rest of us, working people and consumers. Have you got a general sense of how it’s gone down with working people?
ANNABELLE: Yeah. So PensionBee ran a survey and I thought the responses were quite interesting. We found that 29% of Brits feel less confident about their finances following the budget.
PHILIPPA: That’s a big number.
ANNABELLE: It is, that’s a third of people. And the other stat that jumped out is 47% of Brits feel negative about the upcoming changes to Inheritance Tax on pensions.
PHILIPPA: Yeah, we’ll get into the details on Inheritance Tax in a little bit. But I see that nearly again, nearly 30% - 29% are now thinking they’re going to use alternative ways to pass on their wealth, things like gifts and trusts.
ANNABELLE: And then 32% think that the changes to employers’ National Insurance contributions (NICs) will have a knock on effect on their wage increases in future.
PHILIPPA: Yeah, that’s the big one. So let’s get into that one. Employers National Insurance contributions - I know it doesn’t sound necessarily like it’s got much to do with our personal finance because, you know, ordinary workers don’t directly pay it themselves out of their pay packets. But as you say, there are implications here, aren’t there for pay and indeed for job prospects?
Employers National Insurance contributions
ANNABELLE: Yeah. So what they’ve done is they’ve increased the rate of National Insurance that employers have to pay per worker and they’ve also lowered the threshold at which employers have to start paying it. This is ultimately an extra cost for businesses. It’ll depend on the business, of course, how well they’re able to absorb that, but in the long run that could mean that it’s going to be passed on to workers, potentially in the form of not having as big pay rises or possibly even employer pension contributions not being as generous.
PHILIPPA: Yeah. There’s been a lot of press coverage about this, hasn’t there? This suggestion that if employers have this extra cost, they could think harder about putting people’s pay up. And even the staff they have now, they might think about reducing the hours for people, if they’re paying by the hour, because it’s all cost or indeed not hiring as many people as perhaps they might’ve thought they were going to.
ANNABELLE: Yeah, I mean, with any kind of tax on businesses, it often falls more heavily on smaller enterprises that only employ a couple of people. And those businesses are all over the country and they’re the real backbone of the economy.
Inheritance Tax and pensions
PHILIPPA: Turning onto Inheritance Tax, the Chancellor made changes there. She’s frozen the threshold at which it kicks in until 2030.
ANNABELLE: That’s right. So with Inheritance Tax, the two big assets that most people have are their family home and their pension. And rising property prices have pushed more estates into Inheritance Tax thresholds.
PHILIPPA: Just because prices go up?
ANNABELLE: Yeah. And the issue with this is that people who’re passing away now, may have bought those properties back when they were far more affordable and they may not have lived a particularly lavish life and don’t feel particularly well-off, but then when they die, they know that their property is above the threshold. So it’s £325,000 per person (2024/25), but then there’s an extra allowance for property that brings it up to half a million. But, you know, people are dying and then they know that that property is going to have to be sold to pay an Inheritance Tax bill. So it’s a really emotive issue.
PHILIPPA: It sounds like a big number, doesn’t it? But actually, I mean, obviously it’s a geographic distribution, isn’t it? It depends where you are in the country. In some places, property prices, you know, £500,000, amazingly, doesn’t buy you that much?
ANNABELLE: Yeah, that’s right. So, I mean, for all the ‘hubbub’ over Inheritance Tax , we need to remember that it’s actually only a tiny proportion of estates that actually end up paying this. So the Chancellor reckons that this year, only 6% of estates will actually be due Inheritance Tax.
PHILIPPA: Yeah, yeah. As you say, that’s well worth remembering.
The other change she made on IHT - Inheritance Tax - this issue about unused pension and death benefits getting wrapped into Inheritance Tax now too (from April 2027). That’s a big change, isn’t it?
ANNABELLE: Yeah. So with pensions, you’ve got defined contribution pensions, which is where you retire with a pot of money and you have to make it last.
PHILIPPA: I mean, this is most people nowadays, isn’t it?
ANNABELLE: Yeah, exactly. And previously, if you passed away before the age of 75, you were able to pass that on to your descendants without paying Inheritance Tax. There were different rules for people who died over the age of 75. Now, let’s not get into that, because pensions are really complicated.
PHILIPPA: Absolutely.
ANNABELLE: But what the Chancellor has done now has brought pensions into the remit of Inheritance Tax, so they’d be added to a person’s estate alongside their other assets.
PHILIPPA: I mean, this could be really significant, couldn’t it?
ANNABELLE: It potentially could. And one of the things that has been happening in the past few years is wealthier people who’ve already saved up enough in their pensions to see them through retirement, have been opening defined contribution pensions and they’ve been putting away extra money in there for their heirs. So they know that they’re not going to use them and they’re going to be passed on. And that’s been, I think, really quite useful for families, because, as we all know, most people today aren’t saving enough money and it’s really hard for the younger generation too, what with property prices. So, you know, trying to give your children a leg up with a pension was something that a lot of people wanted to do.
PHILIPPA: And also, worst case, it just meant that you were saving as much as you could into your pension, which is always going to be a good idea, isn’t it? Because who knows what’s going to happen in future, who knows how much money you might end up needing for elder care costs, whatever it might be. And now if they don’t spend that money, as you say, when they pass it onto their kids or whoever it is, then that’s going to be taxable?
ANNABELLE: Yeah, I mean, I think with this you’re again going to see people looking at the gifting allowances that there are with Inheritance Tax and trying to find ways to pass on money to loved ones now rather than waiting until after they die.
PHILIPPA: I mean, as you say, everything to do with pensions tends to be a little bit nuanced and complicated. So I’d say if anyone wants to know the details on this, we’re going to put some links in the show notes, I think, aren’t we? So that they can dig into it. And of course the PensionBee website and app have got a lot of information about it, hasn’t it? Just fresh off the back of the Budget. It’s all there. And I think it’s worth saying also that pensions, they’re still very attractive tax-wise, aren’t they? You still get the tax relief.
ANNABELLE: Yeah, absolutely. So this change [to Inheritance Tax] isn’t coming in until April 2027 and the detail of how it’s actually going to work hasn’t been laid out. Now, the Chancellor didn’t say that there would be any measures to protect people who’ve already planned their affairs around the existing rules. So we can’t guarantee that that’s going to happen. But in the past when there have been changes to pensions rules, they often do put in place some type of ‘protections’ - that’s the word that’s used in the industry - to help people before the rule comes in. So, you know, no need to panic just now.
PHILIPPA: Yeah, absolutely not. Don’t panic!
Capital gains tax (CGT)
PHILIPPA: Capital gains tax. Just remind us who has to pay this now because the rates did change in the Budget?
ANNABELLE: So capital gains tax is a tax on the profit made when you sell valuable assets. That includes second homes, stakes in a business, things like art, jewellery and also the big one for investors is shares that you hold outside of a pension or an ISA. What it doesn’t include is caravans, boats, cars or your main home.
PHILIPPA: OK.
ANNABELLE: In reality, very few people pay capital gains tax, because you get quite a big annual allowance before you have to pay it?
PHILIPPA: That’s right. So everybody’s got this tax-free amount, which is £3,000 each year. So if you sold some shares or some jewellery and your profit was less than £3,000, you wouldn’t then pay capital gains tax, right. But what they’ve done is for people who are selling things and they make a profit above £3,000, then the capital gains tax rates have risen.
PHILIPPA: You mentioned shares there. So do you think the changes to capital gains tax will impact investors directly then?
ANNABELLE: Well, it depends. So pensions and ISAs are known technically as ‘tax wrappers’ because if you invest through one of them, you’re shielded from taxes like capital gains tax. What sometimes happens is that people decide that they want to start investing, they go to a website and then they open a general investing account and they don’t realise that that isn’t an ISA or a pension, i.e. it’s not a ‘tax wrapper’. And eventually when they sell shares, they’ll be hit with tax. So I think it’s really about education and people understanding a bit more about how the system works so they can protect themselves from these taxes.
PHILIPPA: Yeah, and it really does reinforce the benefits, that clear tax benefit of saving into an ISA or a pension.
Stamp Duty
PHILIPPA: Stamp Duty was a bit of a surprise, wasn’t it? Thinking about people buying their own home or even buying a second home. It changed on the day? Was it on the day or on the next day after the Budget, a new rate kicked in for second homes?
ANNABELLE: Yeah, it kicked in the day after. Now, I wasn’t expecting this at all. So in the past few years, the government - the previous government and now this one - they’ve made it less advantageous in terms of tax to have a second home. And what they’ve done is they’ve basically bumped up the rate of Stamp Duty that people have to pay when they’re buying an additional home. There’s been this belief that landlords and people buying up second homes has been a big competition in the market that’s really prevented first-time buyers and home movers from getting the properties that they want. So I think the government’s aim here is by making it more expensive to buy second homes, it should limit demand there.
PHILIPPA: Yeah, I guess the other argument to that - the counter argument would be - that there aren’t enough rental properties are there? Which is why rents are so high?
ANNABELLE: Yeah, I mean, look, if people sell up buy-to-let property, that property doesn’t burn down, you know, it’s still there. Maybe somebody else will buy that property and rent it out. Maybe a first-time buyer could move into it. So I think this is just one measure and it needs to be part of a much broader set of measures aimed at, you know, improving the property situation in the country.
PHILIPPA: Yeah. Which is something the Chancellor is very keen to do.
The impact on working people
PHILIPPA: Thinking across the whole Budget, I mean, how do you see the impact on the average person? Would you say they’re better off or worse off?
ANNABELLE: I think we’re going to have to give it a bit of time before coming up with that answer.
PHILIPPA: Yes. We don’t have all the details, do we?
ANNABELLE: No, we need to see how employers respond to this increase in National Insurance, for example. But you know, I think it’s worth mentioning that the reason these tax increases have come in is because people want better public services which need to be funded in some way.
What are ‘stealth taxes’?
PHILIPPA: We often hear about ‘stealth taxes‘, don’t we? This idea of something that isn’t exactly labelled as a tax, but in the end, you know, it costs people money regardless. Do you see any of the measures really as ‘stealth taxes’?
ANNABELLE: So I guess they’re ‘stealth taxes’ in the sense that they aren’t the big taxes that everybody thinks about, you know, income tax, National Insurance or VAT. But on the other hand, these are so well-discussed, they’re not really tax measures that are flying below the radar, are they?
PHILIPPA: We’re going to see the [National] Minimum Wage go up though, aren’t we? I mean, that’s good news. It’s going to take the edge off, at least for some people?
ANNABELLE: Yeah, absolutely. I mean, the cost of living is absolutely astronomical and it’s far harder for people who are on the lowest incomes to get by. So this is definitely something that should help.
PHILIPPA: Yeah. Though it is, I suppose worth saying that employers have, you know, rolled their eyes about that as well because obviously that’s an additional cost for them?
ANNABELLE: Yeah, I mean, I think, you know, the Chancellor wanted this to be a Budget whereby the tax burden didn’t fall on the individual, but did fall more on businesses. Now, as to the overall effect that that’s going to have on the economy, we’re just going to have to wait and see.
PHILIPPA: So we talked a lot about what was actually in the Budget but what didn’t you see that you would’ve quite liked to see?
ANNABELLE: We would’ve liked to have seen Auto-Enrolment - which is being enrolled into a pension through the workplace - extended to younger workers. So legislation for this was passed a year ago, but it still hasn’t come into effect. At the moment, Auto-Enrolment only applies to workers who are aged 22 or over, but there’s plenty of people in the workplace from the age of 16 or 18 who could also benefit from starting to save for retirement.
PHILIPPA: Annabelle, thank you so much. It was really great to hear everything explained so clearly.
ANNABELLE: A lot to digest, but I hope that was useful.
PHILIPPA: How was your first podcast experience?
ANNABELLE: Yeah, it was great!
PHILIPPA: You can’t really say anything else at this stage, can you!
If you found this useful, check out the latest episode of the podcast, which is all about how to understand your pension balance and what it actually means for your retirement planning.
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Here’s a final reminder that anything discussed on the podcast should not be regarded as financial advice or legal advice and when investing your capital is at risk. Thanks for listening.
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As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
