With the Government’s Autumn Budget looming, PensionBee discusses the ramifications of rumoured policy changes and their potential impact on savers.
Lisa Picardo, Chief Business Officer UK, commented:
On reducing the pension tax-free lump sum:
“The pension tax-free lump sum is a cornerstone of retirement planning, which many have factored into their planning. It enables people to pay off debt, cover major expenses, clear what’s left of the mortgage, or build a financial buffer for any unforeseen events in their life after work.
Limiting the total tax-free cash of £268,275 to a lower amount would be hugely unpopular, especially for those near retirement. Such a move would erode confidence and risk discouraging private saving for retirement when the very opposite is needed.
Stability and trust in the system are essential to ensure people feel rewarded, not penalised, for saving consistently throughout their working lives.”
On removing higher rate relief on pension contributions:
“Tax relief on pensions is a critical element of encouraging people to save for the future, providing a much needed boost. Any move to reduce or remove this would be a betrayal of the government’s manifesto commitment not to tax workers more.
Changes would be complex and time consuming too, yielding very little revenue for the government in the short term. Doctors and many other middle and higher-income employees in the public sector will be amongst the most impacted.
Any moves towards dismantling important tax-incentives that support pension saving would be unwelcome, and at odds with the overall objective of helping people to save more. We need policies that support long-term saving, not undermine it.”
On capping or scrapping salary sacrifice:
“Salary sacrifice is one of the most straightforward and efficient ways for employees to boost their pension contributions, directing part of their gross salary into long-term savings while reducing the amount of income tax and National Insurance (NI) paid.
Rumours that the government might change the rules by scrapping employer NI exemptions, making it less appealing for employers to offer, or prompting them to pass the cost to employees, would be an unpopular move.
It would disincentivise companies who provide workplace pensions and send the wrong message to millions of basic rate taxpayers trying to save more for their future.”
On further reforms to inheritance tax (IHT):
“In last year’s Autumn Budget, the Chancellor sprung a nasty surprise, proposing plans for most unused pension funds and death benefits to be included in a person’s estate for IHT purposes from April 2027.
This “pension death tax” would represent a major departure from the current rules, and continues to receive opposition from the public and the industry.
In addition to creating a significant administrative burden on grieving families, and generating significant practical issues and complexity, there may be significant unintended consequences of this proposed reform as people are discouraged from saving for retirement or are encouraged to spend their savings too quickly.
Rather than undermining pensions and layering complexity and uncertainty into the system, the focus should be on cementing clear and consistent rules that allow families to plan with confidence.
This Budget, the Chancellor may go even further amid rumours of plans to reform IHT by changing the seven-year gifting rule, or removing exemptions on gifts and transfers. This would have far-reaching implications for ordinary families, not just the wealthy.
Many use gifting as a way to support younger generations with education or housing costs, offering children and grandchildren an important lifeline in the ever-rising inflationary tide.
Removing these allowances and reliefs could have massive ramifications for the transfer of intergenerational wealth, making it harder to pass on assets in a planned, responsible way.”
