𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Will there be another Budget attack on pensions next month? The Chancellor needs extra tax revenue to fund rising spending and benefit bills, while also boosting growth by upgrading Britain’s crumbling infrastructure, and supporting scientific research and technological developments.

With well over £70billion a year spent on tax relief for people’s pensions, and Ministerial comments suggesting older generations should pay more to help out the young, Rachel Reeves is bound to look at pensioners and pension spending as a potential source of extra revenue.

So what options might she be considering? She could cut the 25% tax-free cash you can take from your pension fund from age 55. There are fears she will reduce the maximum tax-free withdrawal from £268,275, to perhaps £100,000. Such a retrospective change would hit middle class pension savers, up-ending plans of those relying on their tax-free cash to repay mortgages or other debts, damaging confidence in pensions.

She could also reduce the Annual Allowances that set maximum annual tax-relieved pension contributions. The current £60,000 limit and ability to carry forward any unused allowance for up to three years, might be cut to, say, £30,000, which can only be carried forward one year. She could also reduce the £10,000 Tapered and Money Purchase Annual Allowances which apply to people earning over £200,000 or those who have withdrawn more than tax-free cash from their pension.

Although relatively simple for investment-linked modern Defined Contribution pension, such cuts would impose huge extra taxes on traditional salary-linked pensions, particularly hitting public sector workers, including senior NHS staff, which could provoke strike action.

Another money-spinner for the Chancellor would be imposing National Insurance on pension income. This hugely unpopular change could raise billions, but would hit millions of ordinary pensioners.

In my view, there is one policy option that could boost growth at no extra Exchequer cost. My proposal would direct more tax relief to boost Britain. For example, requiring at least 25 per cent of all new pension contributions to invest in UK assets – quoted companies, venture capital, start-up capital or real assets, such as infrastructure, property and alternative energy.

Most overseas pension funds have at least 25 per cent invested domestically, while UK funds often have under 10% and invest most money overseas. I am not suggesting forcing people, but as a quid pro quo for receiving the extra money from taxpayers to boost your contributions, it seems reasonable to ask that you put no more than 75% outside the UK. I believe in Britain, we need long-term investment and pension funds are an obvious source.

Finally, the Government must urgently change its proposals for imposing inheritance tax on unused pension funds. The measure will be a total disaster for future pensions, with people rushing to withdraw as much as they can, as soon as they can, particularly up to the annual £50,270 higher rate income tax threshold, with less money going into pensions, and millions more poorer future pensioners.

She could instead introduce a new flat-rate levy on unused pensions, totally separate from inheritance tax. Instead of having to identify all relevant pension assets, get up to date valuations, establish who the pension passes to, then calculating and paying the correct tax within six months (and facing 8 per cent interest on tax paid late), a simple 10% or 20% deduction could be paid to the Exchequer by the pension provider.

Let’s hope the Chancellor will resist major damaging changes and go for more sensible options.