Chancellor Jeremy Hunt: Painful financial measures expected next Thursday
Retirees and retirees fear the raid over a cash-raising move the government is rumored to be considering in its latest financial plan.
A more parsimonious system of tax breaks for pensions will make it harder for working people to create a decent pension basket.
And those who gave their entire working life to the state pension are outraged by the possibility of betrayal of the second triple lock.
However, Chancellor Jeremy Hunt will have to come up with some very painful measures to prove to international markets that he controls the country’s finances.
Vague assurances of integrity may have worked in the past, but one of the consequences of October’s disastrous mini-budget is that the UK government must now ‘show’ rather than just ‘tell’ its creditors that everything is fine.
“It’s not surprising that there are rumors about what taxes could go up, fueled by briefings from various ‘sources’ in Westminster,” says Jason Hollands, managing director of Bestinvest.
“This kind of potential action kites are becoming more common in British politics and are being used to test the likely extent of any backlash.
“A cynic would point out that allowing speculation about a lot of unpopular measures, some of which may not be serious, can also help make what happens on Budget Day less harsh than expected, so that people can breathe a sigh of relative relief. .’
We’re looking at what pension announcements might be accepted and gathering expert opinion on what the Chancellor might say next Thursday.
Retirement tax break: Tories risk ‘biblical backlash’
What is it and what can change? Retirement tax credits allow anyone to save for retirement from tax-free income. This means that the more you earn, the more sweetener you get.
The rebate is based on a personal income tax rate of 20%, 40%, or 45%, which tilts the system in favor of the wealthier as they pay more taxes.
Rumors of reform usually revolve around the introduction of a flat rate, in which taxpayers with higher and additional rates receive a reduced level of benefits, while taxpayers with the base rate are either the same or slightly higher than they are now.
The government will be more stingy in establishing a new flat rate if it is trying to save money, and subsequently could probably move it up and down at will.
But overhauling pension tax credits would be more of a big undertaking than a quick money-raiser, otherwise it would have been done a long time ago.
What are the pensioners saying? “The Sword of Damocles seems to be constantly hanging over tax breaks at higher rates, and it’s become sort of a tradition to hear rumors coming from the Treasury about its imminent demise ahead of budgets and fall reports,” says Tom Selby, head of pension policy at AJ Bell. .
Tom Selby: Removing higher tax breaks would hit middle England in the pocket
“Perhaps this is unavoidable given that the total net worth of pension tax and National Insurance benefits was estimated at around £50bn in 2020/21.
“While successive chancellors have slashed pension tax breaks, the higher rate breaks have remained intact, despite estimates that their removal could generate annual savings of around £10bn.”
Selby says there are many reasons why chancellors have abstained so far and offers the following summary.
“The removal of higher pension tax exemptions would hit the middle of England straight in the pocket, a section of society that the Conservative Party cannot afford to alienate.
“Auto-enrollment also remains relatively fragile – especially with millions of people facing a reduction in the cost of living – and there could be concerns that waiving higher rates could cause a rise in waivers.
“The government risks being accused of intergenerational injustice given that the older generation will be able to take advantage of a higher bailout rate, while younger workers will have the carpet pulled out from under their feet.
“It is also completely unclear how this would apply to defined benefit schemes and the public sector in particular. Whatever the method, the end result will be big tax bills for a lot of public sector workers.
“Pensions are already putting significant pressure on the NHS, and issuing yet another tax bill to doctors to eliminate their tax credits at higher pension rates could lead to a backlash of biblical proportions.”
Source: AJ Bell.
Jason Hollands of Bestinvest says: “Abolishing the pension tax break – or annual contribution cap – would certainly result in a significant increase in taxes, but would also reduce the attractiveness of retirement savings for millions of Britons.
“There will be some political cover as opposition parties have previously called for a similar review, making it difficult for them to oppose such a measure.
“However, this would come with significant political risk for core Tory voters, and interference with retirement benefits could also again cause problems for senior healthcare workers who receive generous NHS pensions.”
Alice Guy, personal finance expert at Interactive Investor, says: “Reductions in retirement tax credits will disproportionately affect private sector workers, most of whom do not have a guaranteed fixed pension in the workplace. They rely on retirement tax credits to help them save enough for a comfortable retirement.”
She explains: “Many European countries have a much more generous public pension system, where final payments are based on almost 50 percent of the average wage.
“By contrast, the UK State Pension is a two-tier system with a small fixed State Pension, supplemented by Work Pensions and Private Pensions, which are boosted by tax credits.
Jason Hollands: step against pension tax breaks will make retirement savings less attractive for millions of Brits
“If the state pension troika…
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