Pensions - Articles - What is in store for pension savers in Budget 2024

Ahead of the Chancellor’s next Budget speech, in just under two weeks time (6 March 2024), PensionBee gives its view on the implications for pension savers and retirees of what the Chancellor could consider.

 Becky O’Connor, Director of Public Affairs at PensionBee, said: “It’s a General Election year, so the upcoming Budget is far more likely to contain headline-grabbing giveaways than painful tax grabs.

 “With precious votes to play for, a popular approach is probably to be expected and could mean tax cuts of all kinds, whether income or inheritance tax.”

 Tax cuts impact
 “The Chancellor has already overseen a cut in National Insurance contributions from 12% to 10%. Further big changes to tax could have some beneficial knock-on effects for savers wanting to prioritise their pension. For instance, cutting the basic rate of income tax - or perhaps more pressingly given wage rises, increasing the income tax thresholds - could mean people feel more able to save more into their pensions or to start contributing, thanks to an increase in disposable income. Rishi Sunak had announced in 2022 that he would cut the basic rate of income tax in stages, although this plan was later shelved. It’s worth noting that a reduction to tax rates would also mean an equal reduction in the amount of tax relief on pension contributions.”

 Pension taxation
 “Further direct changes to pensions taxation seem unlikely. Jeremy Hunt has already made some big, surprise changes to pensions: the abolition of the Lifetime Allowance, the increase to the Annual Allowance from £40,000 to £60,000 and the increase to the Money Purchase Annual Allowance from £4,000 to £10,000.

 “If further reform of the tax treatment of pensions is something the Chancellor wishes to look at, introducing a flat rate of tax relief, taxing pension contributions or altering the way National Insurance contributions interact with tax relief are all possible methods that have been considered in a recent Government briefing paper.”

 Pension policy
 “We could reasonably expect further mention of the Mansion House reforms, which are designed to channel more pension fund money into UK growth companies. In particular, we would welcome more detail on the kinds of growth assets pension savers’ money would be funnelled into - how much the Government hopes pension funds will invest in the UK and at what cost. Whatever further detail may be announced here, we will be looking for detail on how pension savers’ retirement outcomes will be prioritised above any other economic objectives. There might also be further details of dates for when the extension of Automatic Enrolment changes: reducing the minimum age from 22 to 18 and removing the lower limit for the qualifying earnings band for contributions, will come into force.”

 ‘Pot for life’ pensions
 “There could also be a mention of further developments around other suggested reforms, such as the Lifetime Provider or ‘pot for life’ model. The Government consultation on this proposal closed at the end of January, which could enable the Chancellor to make a further statement on next steps for this proposal.

 According to PensionBee research, more than three-quarters (76%) of pension savers said they would consider opting for the new model if it was introduced.”

 The State Pension
 “When it comes to the State Pension, the Government has already committed to maintaining the Triple Lock guarantee and given the extent to which this benefits older voters, it seems unlikely that a much called-for review of the Triple Lock would be initiated now.”

 “It is possible that calls for earlier access to the State Pension for those unable to continue working to State Pension age might receive some attention, following the State Pension Age Review 2023, by Baroness Neville-Rolfe, which highlighted the case for this, as this would be a popular move. It might also pave the way to further changes to the State Pension designed to make it more sustainable.”

 Rabbits out of the hat?
 “What else could be on the cards? One move the Chancellor could make for everyone, but especially pensioners and others on low incomes, would be to increase the personal tax allowance from its current level of £12,570. This would also counter accusations that the Government has been pursuing a policy of ‘fiscal drag’, allowing wage growth to bring more people over tax thresholds and generating more revenue.

 “Another move that could benefit many people, but especially the older generation, would be to increase the personal savings allowance for tax on interest. Currently, basic rate taxpayers can receive £1,000 in interest without paying tax. As interest rates have increased, the likelihood of savers facing tax liabilities from going over these thresholds has increased. It’s possible that the Government could look to win over savers, in particular older savers who tend to have larger balances, with a generous increase here.”

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