Little impact on pensions savers, but a few things to watch for

After a whirlwind of speculation across mainstream and social media pre-30 October 2024, the fears of a direct attack on pensions savers in the Chancellor's Budget appear to have been unfounded.
Perhaps this was because of the potential impact on the public sector? Or perhaps savers and advisors’ concerns were listened to?
In the end, despite the fact that Income Tax and National Insurance savings on pension contributions are estimated to exceed £45bn a year, no changes to the taxation of a member’s contributions or benefits were announced.
So no impact on pension savers?
Well, no, not quite.
First, for those who have been looking to transfer their UK pensions overseas, there is further tightening of tax charges which will make it even less attractive to do so.
This Insight article published in September 2024 outlined the pre-Budget rules; one key change to flag here is that the exemption from the 25% Overseas Transfer Charge for transfers into the European Economic Area (and indeed Gibraltar) will be removed.
Then, the Chancellor announced the intention to bring unspent defined contribution pension pots into the estate for Inheritance Tax (IHT) calculation purposes, with effect from April 2027, impacting around 8% of estates.
This is alongside freezing the current IHT thresholds* to April 2030 (two years further than the current freeze period), which is essentially a stealth tax revenue raiser known as ‘fiscal drag’. Therefore, even those whose estates wouldn’t be affected now could be in the future, once wealth accumulates further value. Clearly, the addition of a pension pot compounds this.
*£325,000, or £500,000 if the estate includes your home which you give to your children or grandchildren.
I’m retiring in the UK, so nothing to think about until I die, then?
Well, there were bigger fish being fried in the Budget when it came to long-term wealth accumulation; for example, an immediate hike in general Capital Gains Tax rates to 18% and 24% (from 10% and 20%, bringing these general rates in line with rates for gains on residential property not benefiting from the Principal Private Residence exemption).
However, some things to think about that are likely to have an indirect impact:
- An increase in Employers’ NIC rates from April 2025 – rate increase from 13.8% to 15%, plus a decrease in threshold from which this is payable from £9,100 pa to £5,000 – this double whammy is a reasonably significant additional cost for employers to budget for.
We can foresee a reduction in salary growth as a result, which will impact projected pensions at retirement under both Defined Contribution (‘money purchase’) and Defined Benefit (‘final salary’) plans.
Additionally, we can see employers becoming less generous with passing on a portion of National Insurance savings, which is a practice that has been adopted by a number of employers with salary sacrifice schemes. They may also look at reducing their overall level of base or matched contribution (although to do so may require employee consultation).
The announcement of the April 2025 increase to New State Pension of 4.1% – an increase of £470 a year to £11,976 – is a welcome reaffirmation of the Government’s commitment to the Triple Lock. However, the effect of freezing personal tax allowances (until April 2028) is that pensioners with minimal income above the New State Pension may well start to pay Income Tax close to that date, and it is a reminder that this alone is unlikely to be a sufficient source of retirement income. Certainly, the UK is far behind the 27 EU Member States and the Organisation for Economic Cooperation and Development average in terms of income replacement at retirement, even since the advent of autoenrollment pensions in 2012.
Of course, the hope is that the Chancellor’s overall suite of policies aiming for a ‘decade of financial renewal’ will be the start of a longer-term growth trend, as well as a return to a targeted 2% inflation norm, and fast return on investment across all manner of public services (notably the NHS). Certainly, the immediate market reaction (in terms of 10-year gilt prices) is reported to have shown tentative confidence. But only time will tell.
If you have any questions about the above, please get in touch with your usual Blick Rothenberg contact or with our pensions team using the form below.
Would you like to know more?
If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact Tomm Adams or Martin Reynard using the form below.
Disclaimer: Nothing in this article should be construed as tax advice, which should be sought specifically tailored to your circumstances. Further, Blick Rothenberg does not provide investment advice and you should consult with an independent financial advisor before making any material investment decisions.
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