Chancellor’s statement next week will mainly give an update on the economy – though changes that affect pensions could possibly be unveiled too
Rachel Reeves is set to deliver her Spring Statement on Wednesday 26 March.
The Chancellor’s statement is focused on giving an update on the country’s economic situation – the Government has insisted that it will not be another Budget like the one we saw in October.
This means it is likely to be light on policy announcements.
But nonetheless, experts predict that there could be some updates that affect those saving for or receiving pensions.
Here are the key areas that we could see announcements on.
Update on inheritance tax on pensions
The lead-up to last autumn’s Budget was filled with speculation that there could be changes to the ways tax relief on pensions worked.
In the end, the only major change to pension taxes at the Budget was the announcement that pensions would become subject to inheritance tax (IHT) from 2027, when currently they are not.
This was put to a public consultation which has now closed, so experts think there could be more detail unveiled about what the response to the consultation was, and how the policy will work in reality.
“The Spring Statement could be used to offer further details or even soften the approach. However, it may be too soon for a full response, and the Government could instead launch a second round of consultation to buy more time,” said Kirsty Anderson, a retirement specialist at Quilter.
Tom Selby, director of public policy at AJ Bell said: “Rachel Reeves could use the opportunity to give an indication of whether she is willing to consider doing things differently, or if the Treasury is committed to its IHT plans.”
Review into workplace pensions
In its general election manifesto Labour pledged a detailed pensions review, with an interim report on the first part of this – looking at investment – published last year.
The second part of the report is set to look at adequacy, addressing things like auto-enrolment into pensions and possible changes to this, but it is yet to materialise.
Experts think an update on when this will come could form part of the Spring Statement.
People pay a minimum of 5 per cent of qualifying earnings into a pension under auto-enrolment, with their employer contributing an extra 3 per cent. It only starts when you hit the age of 22, and only pre-tax employment between £6,240 and £50,270 is included – known as “qualifying earnings”.
Some pension campaigners want the Government to look at changing this.
Lisa Picardo, chief business officer UK at PensionBee, said: “Lowering the starting age from 22 to 18 and scrapping the £6,240 earnings threshold would give millions more workers access to pension saving from day one, expanding the reach, narrowing pension saving gaps and supporting better engagement.”
Selby added: “There are significant challenges to overcome here, principally how and when to scale up minimum automatic enrolment contributions from 8 per cent of ‘qualifying earnings.’”
But he added there was a chance that no announcement will be forthcoming.
“Having already significantly hiked costs on employers in her October Budget and with the Government focused on delivering improved economic growth numbers, there is every chance this particular reform will find its way into the political long grass,” he said.
Tax changes that could affect pensioners
The previous government froze the threshold at which people start paying tax – known as the personal allowance – at £12,570.
It also froze the higher and additional rate tax thresholds while the additional rate threshold was cut in 2023 from £150,000 to £125,140.
In October, Reeves ruled out extending the threshold freeze beyond 2028, but financial experts think she may have to revisit this, in order to make savings.
This would mean more pensioners paying tax, as the full state pension is very close to the £12,570 tax threshold.
Steven Cameron, pensions director at Aegon, said: “One possibility is an extension of the freeze on personal allowances which will drag even more pensioners into paying higher income tax rates.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Rumours that income tax thresholds could remain in the deep freeze will be worrying for pensioners surviving on the state pension. The full new state pension is due to hit £11,973 in April – just a whisper under the £12,570 threshold for paying tax.
“Even annual increases of 2.5 per cent – the minimum under the triple-lock – could see it breaching taxpaying territory in just two years’ time. This will cause concern for pensioners who are already struggling to stretch their day-to-day budget.”
