On 30 October 2024, the Chancellor of the Exchequer Rachel Reeves delivered the first budget of the new Labour government since their election at the beginning of July. This longer than usual interval between election and budget fuelled speculation on what would be included.
We’ve collected and compared some of the facts from fiction below.
Prediction | Result |
|---|---|
Inheritance Tax (IHT) Rumours said that inherited pensions, previously excluded from the IHT regime, were now tapped to count towards IHT thresholds. | Correct The Chancellor announced that inherited pensions would fall within the scope of the IHT regime with effect from April 2027. Rises in house prices over previous decades have contributed to the IHT regime applying to individuals who may not otherwise have expected it. This reform, the fine detail of which is awaited, could see further families subject to charges during bereavement and may impact on how individuals approach saving for their retirement. How this might interact with other reforms, such as the new lump sum and death benefit allowance, remains to be seen. His Majesty’s Revenue & Customs (HMRC) have published a consultation seeking views on the processes required to implement these changes for UK-registered pension schemes. This leaves many questions still unanswered, including the extent to which group life assurance schemes are caught and the potential impact on schemes’ death-in-service processes. The consultation will be open until 22 January 2025. |
Flat rate tax relief on contributions It was suggested that a new flat rate on pension contributions could provide room for the government to raise revenues while leaving other, manifesto-protected, taxation off the table. | No change One possible reason for this measure not being adopted is its potential to affect public sector workers. This might also cause issues for another policy aim – retention of senior National Health Service (NHS) staff. |
Abolish salary sacrifice for pension contributions Workers’ wages are subject to employee and employer contributions of National Insurance (NI), however, wages that are sacrificed directly into a pension are exempt. Some estimates set lost revenue on NI-free employer pension contributions at a very high level, and so salary sacrifice was tapped as one avenue for raising revenues. | No change The Chancellor chose to leave the system in place. However, the budget did see NI Contributions for employers rise from 13.8% to 15%, and the threshold for payment has fallen from £9,100 per annum to £5,000. With the minimum wage also set to increase, there is now speculation that this increase in costs could lead to some companies choosing to stop sharing NI savings on salary sacrificed pension contributions. Some have raised concern that this could impede the progress made by auto-enrolment in addressing the growing problems in the working population’s readiness for retirement. |
Limits on tax-free cash Current tax rules mean a quarter of available pension being taken as a lump sum is a typical approach to retirement. This 25%, often referred to as “tax-free cash”, could have been amended to increase government revenues. This might have come as a reduction to the percentage amount or to the monetary limit applying after the abolition of the Lifetime Allowance. 20% and £100,000 were felt to be particularly likely among the numbers discussed. | No Change This may have been retained in part because of the need for complex transitional rules to avoid disrupting the plans of those approaching retirement. The abolition of the Lifetime Allowance has been a complex exercise and the new lump sum rules continue to bed in. Further amendments to lump sum rules may be unlikely for the moment. |
The government has made no secret of its desire to reform UK pensions. The review of the pensions landscape, and the Pension Schemes Bill, are just two avenues for further reforms that may appear sooner rather than later.