Autumn Statement could include a £50billion ‘stealth tax raid’

Pensions triple-lock ‘right thing to do’ says Altmann

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As anticipation for Chancellor Jeremy Hunt to unveil the Autumn Statement on November 17 grows, there has been much speculation about what measures could be announced. Among the many areas people fear could be adversely targeted, a key cause for concern is pensions.

With intentions to fill a £50billion “fiscal black hole” caused by Liz Truss and Kwasi Kwarteng’s disastrous mini-budget in September, a combination of tax rises and spending cuts is to be expected.

Analysts predict measures could partly come in the form of a stealth tax, with frozen thresholds concerning a range of areas, including pension lifetime allowances and inheritance tax thresholds, until April 2028.

However, “tinkering” with the pensions system could “force an already creaking pension system to its knees,” interactive investor personal finance expert Alice Guy has said.

Ms Guy said: “Many European countries have a much more generous state pension system where final payments are based on almost 50 percent of average wages. In contrast, the UK state pension is a two-tier system with a small flat state pension, supplemented by workplace and private pensions which are boosted by tax relief.

“There is a danger that reducing the attractiveness of pension saving will leave the next generation struggling to save enough for their retirement. If the state pension triple lock is scrapped or pension tax relief is reduced, then there is a risk that the UK state pension system could become one of the worst in Europe.

Reducing pension tax relief could also bear a vast impact on private sector workers.

Ms Guy said it would “disproportionately affect private sector workers, most of whom don’t have a guaranteed defined workplace pension.

“They rely on pension tax relief to help them build up enough wealth for a comfortable retirement.”

Pension lifetime allowance freeze

The lifetime allowance is the total amount you can build up in all your pension savings without incurring a tax charge.

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The allowance is said to have more than halved in real terms since its launch in 2006, according to interactive investor.

Ms Guy said: “Freezing the lifetime allowance at £1,073,100 would make it more difficult for pension savers to achieve a comfortable retirement.

“Inflation since 2006, when the cap was introduced, means that £1,500,000 (the lifetime allowance in 2006) would now be worth £2,322,583 in today’s money.

“That means the lifetime allowance has more than halved in real terms since it was introduced in 2006.”

Ms Guy continued: “A private pension pot of £1,073,100 would give someone a pension income of around £32,193 per year if they withdraw three percent per year from their pension. It’s a relatively modest amount and is only around the current average salary in the UK.”

Myron Jobson, senior personal finance analyst at interactive investor added: “The worry is pension savers who have been kicked around like political football, will miss out on valuable tax relief by deciding not to save more into their pensions in fear that they might exceed the LTA limit.”

Inheritance tax threshold freeze

Mr Jobson said: “Freezing various tax thresholds and allowing inflation to drag workers into higher tax brackets is the oldest trick in the book to get tax pounds to plug the colossal hole in the public finances.

“It is a less controversial strategy when real wages are on the up, but amid the biggest fall in living standards in generations, with the Bank of England warning that the UK is facing its longest recession since the great depression a century ago, it is a tough pill for workers to swallow.”

In real terms, it would appear that the value of the inheritance tax threshold has already decreased by £140,000.

According to Mr Jobson, the inheritance tax threshold of £325,000 – introduced in 2009 – would be worth £464,643 in today’s money if uprated every year in line with inflation.

He said: “IHT is no longer a tax on the wealthy as meteoric house price growth and strong stock market performance over the past few decades has dragged an increasing number of estates into the IHT net.”

In fact, research from leading private wealth law firm Boodle Hatfield revealed a startling eight out of the 10 fastest-growing areas paying IHT comprise the country’s lowest earners.

Mr Jobson continued: “Fiscal drag means the IHT threshold has reduced by £140,000 in real terms. The residence nil rate band, introduced in April 2017, offsets some of the impacts of fiscal drag but it only benefits homeowners with children or grandchildren.”

The additional IHT allowance of £175,000 can be claimed where the family home is inherited by children or grandchildren.

Extending the freeze in the inheritance tax ‘nil-rate band’ from 2025-26 to 2027-28 is said to be a move that would raise at least half a billion pounds for the Treasury.

James Green of DeVere Group said: “What this really is is a stealth raid.

“This covert tax increase will not be flagged up on any official list of tax hikes. But it will soon start putting a painful squeeze on grieving families.”

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