Experts have warned there could be several pension changes as Labour Chancellor Rachel Reeves unveils her autumn Budget – and your National Insurance bill could be affected
Chancellor Rachel Reeves could unveil major pensions reforms in the Budget(Image: Getty)
Labour could unveil sweeping pension reforms in the autumn Budget, adding to National Insurance bills. Tax consultancy RSM UK have warned Chancellor Rachel Reeves could be eyeing up a string of pension changes to boost HMRC revenues. This follows the Chancellor recently saying she is thinking about tax reforms in the looming Autumn Statement.
Ian Bell, partner and head of pensions at RSM UK, said: “The Chancellor will no doubt have pensions firmly in her sights in the autumn Budget, and areas of particular interest may be increasing tax or National Insurance contributions for pensioners, removing or restricting the tax-free status on pensions commencement lump sums, and making changes to tax relief on pension contributions, potentially to a flat rate of say 30 percent.”
He highlighted one important change the Chancellor could introduce regarding pensions: “She may also be considering removing the option of salary sacrifice on pension contributions to raise more National Insurance.” Salary sacrifice is an arrangement whereby an employee agrees to a reduced salary by a specific amount, with the employer contributing an equivalent sum into their pension.
READ MORE: Winter Fuel Payment alert issued for pensioners by DWP
The money directed into your pension receives the benefit of whatever pension tax relief applies to you, whilst the cash remains exempt from income tax or National Insurance, as it doesn’t form part of your income. Carlton Crabbe, finance and insurance expert at financial planning firm Capital for Life, also suggested there could be pension reforms in the Budget.
He said: “Each Autumn Statement brings whispers of reform, but this year, the stakes are higher. With the UK facing an ageing population, rising life expectancy, and persistent fiscal pressures, pensions are an increasingly tempting target for tax policy changes.
“If the Government decides to restrict higher-rate tax relief, it could particularly impact middle- to high-income earners who rely on pensions as a core part of long-term wealth planning. Similarly, any move to limit the 25 percent tax-free lump sum would alter retirement cash flow planning for millions nearing drawdown age.”
There could be changes to pensions policy in the Budget(Image: Getty)
From the age of 55, when you can start dipping into your private pensions, you’re allowed to take out up to a quarter of your pension pot as a tax-free lump sum, capped at £268,275.
When asked previously about potential policy changes in the Budget, a representative for HM Treasury responded: “We do not comment on speculation around future changes to tax policy.” The Autumn Budget will be announced before Parliament on Wednesday, November 26.