The Office for Budget Responsibility recently estimated the state pension, the UK's largest-single welfare expense (42% of the total), will soak up 4.9% of GDP by 2027-28 and cost £153 billion. It therefore looks increasingly unaffordable. A third of the population has no private provision. One of the Labour Party's first acts in 1997 was to abolish advanced corporation tax that allowed pension funds and charities to claim dividends gross of a 20% levy.
Kevin Ryan, BI Senior Insurance Analyst, commented: “An aging population increases the UK state-pension burden, which could be addressed in a number of ways, including means testing or redrawing the providing-for-old-age model and adopting a new system along the lines of Australia's approach. Our analysis suggests the beneficiaries are likely to be the current top providers, Aviva and Legal & General.”
UK 2024 Pension Changes Should Be Anticipated
There are many fiscal incentives, yet the average UK pension pot saved in a private plan by individuals is just £32,700, according to the Office of National Statistics. However, the top decile holds 64% of all pension wealth in private programs, which could encourage the government to claw back some of the tax breaks it currently offers pension savers. Contributions to pensions can be made net of an individual's marginal rate of tax. Introducing either no tax incentive, or a flat one for all, would likely save a modest sum, say BI.
The 25% tax-free lump sum from a defined-contribution pension could be rescinded, boosting government tax. Additionally, there are some circumstances in which a defined-contribution pension pot can sit outside of an individual's estate for inheritance-tax purposes, and this could also be changed.
Kevin Ryan, BI Senior Insurance Analyst, added: “The UK's defined-benefit and defined-contribution pension plans appear, at a high level, to contain significant assets, so it's logical that the government would think about utilising some of this liquidity, either via additional taxation or through some form of directed investment. It would however be wrong to concentrate on the big numbers. That's after the UK Office of National Statistics recently reported that the top decile of private-pension savers in 2018-20 held 64% of all accumulated private pensions, whereas the bottom five deciles had less than 1%. Nearly one third of the UK have no private-pension provisions at all. This could drive Labour to seek ways of harnessing surplus liquidity in company-defined benefit plans, which the Pensions Protection Fund views to be healthy in the main.”
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