Chancellor Rachel Reeves could walk into the treasury in March, and deliver what may be the most painful Spring Statement in recent memory. Analysis by pension experts shows that over 60’s especially could be hammered, again, as the so-called anti-austerity Chancellor comes to pillory your next egg.
With inflationary pressures, low growth, and higher taxes, Reeves is trapped in a fiscal straightjacket of her own making, and eyeing up your pension like a hungry wolf circling a lamb. Nothing seems to be sacred, with even her inner circle of treasury ministers questioning the tax-free status of Cash ISA’s to boot, with Emma Reynolds, one of Reeves own cadre of MPs, considering lifting the perk and punishing savers.
Tom Selby, director of public policy at AJ Bell, puts it bluntly: “Whatever label the chancellor puts on her set piece announcement on 26 March, the economic picture the Office for Budget Responsibility (OBR) paints is expected to be grim, with fears of stagnation looming and the spectre of rising defence costs as Donald Trump’s US government retreats from Europe further threatening to strain the public purse.”
With that backdrop, speculation is rife in Westminster that Reeves will be forced to pull every leaver she can to raise revenue. And that means taking a look at pensioners.
The state pension triple-lock means payments keep rising, but frozen tax thresholds mean the full state pension will soon be subject to income tax. As Selby notes: “The Treasury may be comfortable giving with one hand through state pension increases while taking with the other via income tax, but it also leaves the door open for the Conservatives to accuse the government of hitting pensioners with a ‘retirement tax’.”
Not content with just purloining parts of your state pension, the Treasury may also be considering slamming an inheritance tax on anything left over. Reeves announced in October that unspent pensions would be dragged into the IHT net from April 2027. AJ Bell and others are rightly begging the chancellor to rethink. Will she listen? Do not hold your breath.
The government, when the time comes, will insist this is not a formal Budget. Technically that means no massive tax changes are likely. But, the experts warn there is “still room for Reeves to bring forward policy announcements ahead of the formal Budget later in 2025.”
Uproar over plans to drag pensions into inheritance tax may force another Labour u-turn (after all, they are getting quite good at those). AJ Bell is calling for a “Pensions Tax Lock”, a commitment from Reeves to rule out changes to tax-free cash or tax relief for the rest of this Parliament. That would give savers stability and would allow people to plan.
But stability is not what Rachel Reeves does. Raiding savers to plug her fiscal black hole? That is more her style.