Government refuses to rule out pension changes at Budget
The government has refused to rule out the possibility of significant changes to pension policy being made in the budget, as thousands of savers have expressed concern about the lack of time to prepare.
Nearly 20,000 people have signed a petition to introduce a ‘Pension Tax Lock’ ahead of the financial event on November 26, urging Chancellor Rachel Reeves to deliver on two key pension promises.
These are to keep in place the tax-free lump sum that people can withdraw from their pensions and not to reduce the tax relief given on pension contributions.
Responding to the petition with 10,000 signatures, the government said it was “determined to ensure retirees have security in retirement” and that the newly launched Pensions Commission “will look at what is needed to ensure the system is strong, fair and sustainable”.
The revived commission, which last met in 2006, is expected to offer recommendations on how to increase retirement income in 2027.
The government’s response states that it “wants to encourage retirement savings to ensure people have an income or funds they can draw on throughout retirement.”
“In relation to the proposed ‘pension tax lock’, the Government does not comment on proposed tax changes or tax-related speculation ahead of budgets,” he added.
Related: Is Reeves launching a pension tax raid on the Budget?
With Ms Reeves’ second budget fast approaching, researchers from the Institute for Fiscal Studies (IFS) have found that the chancellor will need to find at least £22bn in fiscal efficiency as rising borrowing costs and weak growth forecasts significantly narrow her room for manoeuvre.
But Labor’s determination not to raise headline rates on any of the three largest tax bases – income tax, VAT or national insurance contributions – makes things even more difficult for the Treasury. With these avenues closed, the Chancellor is more likely to opt for more diverse tax adjustments.
Economists have suggested this could put pensions on the table as an option more likely to deliver on ministers’ promises to focus the tax burden on the wealthier.
The ‘pension tax lock’ petition launched by investment platform AJ Bell calls for an “end” to speculation around every Budget regarding changes to pensions. He claims this “erodes confidence in long-term savings” and “can often lead people to make poor, sometimes irreversible, financial decisions.”
Reacting to the government’s response, Tom Selby, director of public policy at AJ Bell, says: “Avoiding calls for stability in pension tax rules ahead of the budget gives the government an easy way out for now, but it means savers will face uncertainty for at least another five weeks.
“The government’s response suggests the Pensions Commission may be looked to for views on the future of pension taxation, meaning immediate budget reform should be off the table.
“If this is the intention, Chancellor Rachel Reeves should at least promise not to make any changes to the pensions tax system until the Commission reports, removing uncertainty in the short term, allowing time for the entire pensions landscape to be taken into account in the round and the consequences of any changes to be carefully considered.”
