Will there be changes to pensions in the Autumn Statement?
Posted on: November 7th 2022 · read
Rishi Sunak and Jeremy Hunt are currently reviewing a range of options to plug the shortfall in the UK finances, which will potentially involve Government spending cuts and tax rises.
The two potential changes that could have largest impact would be to change the State Pension triple lock to a double lock and reduce the level of tax relief on pension contributions.
What might happen to the triple lock?
The triple lock guarantees that the State Pension will increase each year by the higher of 2.5%, average wage growth (between May and July each year) and inflation (using September’s figure). The triple lock was suspended last year, as the COVID-19 pandemic led to an unusual 8% increase in average earnings. The April 2022 increase to State pension was therefore 3.1%.
Earlier in the year, the Government, then led by Boris Johnson, confirmed that the triple lock would be maintained, however, inflation reached 10.1% in September this year – much higher than anyone expected at the start of the year.
Given the £40/50billon hole in the government finances, suspending the triple lock again this year would generate a £4/5billion saving each year. If the triple lock was changed permanently to a double lock, then the savings in the longer term could be substantially higher.
What about tax relief on pensions?
As well as reducing State Pension benefits, changing the tax relief individuals get on paying into pension arrangements could generate billions of additional tax revenue. If tax relief was restricted to the basic rate, currently 20%, then it has the potential to raise £8-10 billion a year from those whose earnings are more than £50,270 per annum.
A change to the tax rate would effectively mean that higher rate taxpayers would pay more in tax and end up with lower income in retirement.
Both options meet the Government’s budgetary requirements to cut tax and increase tax revenue but are likely to be unpopular with millions of voters only 14 months before the next general election.
Whether either option will be included in the Autumn Statement is difficult to second-guess but Rishi Sunak and Jeremy Hunt have said that difficult decisions will have to be made.
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This article was written by MHA Moore and Smalley, it should not be construed as a personalised recommendation and no action should be taken without seeking professional advice.
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