Autumn won’t leave much time for the new government to settle before important pension policy decisions need to be made.
When MPs return to work after the summer recess, many areas of policy will require attention. Some are inheritances from the last government, while others are of the current government’s own creation. The pensions arena provides good examples of both:
The lifetime allowance In March 2023, Jeremy Hunt, predecessor of Chancellor of the Exchequer Rachel Reeves, announced the abolition of the lifetime allowance (LTA). His action removed a £1,073,100 ceiling on the tax-efficient value of pension benefits. In her then shadow role, Reeves pledged to reinstate the LTA, saying that Hunt’s move was “a huge handout to the richest 1% of pension savers”. However, Labour’s manifesto in June included no mention of the LTA’s resurrection, prompting speculation that the idea had been dropped. To complicate matters further, the legislation scrapping the LTA is faulty and requires amendment. Clarification on all counts is needed in the forthcoming Budget.
State pension age The decision on when the State pension age (SPA) should rise to 68 has been deferred twice. Each time the decision was delayed until after an impending election. The last deferral moved the decision deadline to July 2026. Not unreasonably, the previous government had said it would give the public ten years’ notice of any SPA change. The new government now finds itself boxed in, unable to defer any further, as the original recommendation in the 2017 Cridland Report was to start phasing in the new SPA from April 2036.
Automatic enrolment The last government set a target date of the mid-2020s for reducing the minimum age for auto-enrolment from 22 to 18 years, and increasing contributions. However, the 2023 legislation responsible for this change has not yet been enacted. The government faces a difficult balancing act here, as reform would mean better pension provision, but higher costs for employers, greater pay deductions for employees and more tax relief paid out by the Treasury.
None of the above should mean you pause your retirement planning. You are likely to have at least reached retirement if you want to wait for a reform-free pension period before taking action.
Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate tax advice.
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.