Autumn 2024 Budget Speculation: Future Pensioners in cross hairs?

Killjoy Starmer and his band of miserable [wo]men look set to inflict misery, pain and suffering on the hard working UK population in the Autumn 2024 budget.  This modern day Robin Hood will steal from the not so rich and give to the poor.  Not content with telling us how bad things are and how much worse it's going to get - he's set to make us all depressed on the 30th October as we head into the depressing winter. He's planning to kill off a load of conservative voting pensioners by stealing their winter fuel allowance for example.

It's starting to feel like a Game of Thrones episode - "Winter is coming".

Pensions are very likely to feature in the pain and suffering.

I know from personal experience - the very lovely Gordon Brown merrily stole from my pension in 1997 claiming it was a windfall tax.  As it's a pension I was powerless to do anything. I am sure Killjoy has studied these tactics and will be busy planning similar raids.  Not content with stealing off state Pensioners he has his eyes set on future pensioners too.

One area of speculation is the tax relief on pension contributions.  If you earn below £50,270 you are a basic rate tax payer paying tax at 20%.  If you earn above £50,270 and below £100,000 you are a 40% tax payer.   Note these thresholds have remain frozen or not kept pace with inflation for years - dragging more and more people into the 40% tax band.

To illustrate this, in 1992 3.5% of adults were paying higher rate tax (1.6 million people).  By 2022 this had risen to 11%  (6.1 million people) and is projected to rise to 14% (7.8 million people) by 2028.  Once only the  rich paid 40% tax now increasingly it's a growing majority.

Let's play with some numbers.  Adam lives in England and earns £50,270. He pays £7,538.20 in tax and £3,016 in national insurance - £10,554 taken by the tax man so take home salary is £39,175.  Adam decides he want to save for his future so pays £39,175 into his pension - the same as his take home salary.  His take home salary is now £7,539. However the government refunds the tax on the £39,175 , £9,793 and adds this to the pension contribution so the amount going into Adam's pension is £39,175 but the actual contribution Adam makes is £31,340 and he takes home £7,539.

Now Killjoy doesnt like this.  It's deferring taxation and he's not going to be in power when Adam starts paying tax on his pension. He want's the tax NOW to fund his planned blackholes.

Sophie lives in Wales and earns £100,000. She pays £7,540 tax at the  20% rate and £19,888 tax at the 40% rate and another £4,010 in national insurance.  A total of £31,439 in tax with a take home of £68,561.  Killjoy likes Sophie as she pays lots of tax. 

However Sophie also decides to pay into her pension. Sophie decides to pay £40,000 into her pension. Because she's a 40% tax payer, HMRC gives her tax back at a higher rate than Adam so she pays in £13,334 and the tax man pays in £26,666.  Her take home salary is now £44,561 so £24,000 less yet she had £40,000 going into her pension.  This money from HMRC was her money anyway - it's what she would have paid in tax. It's not free money.

Now Killjoy doesn't like this.  Instead of paying £19,888 of 40% tax she is now only paying £3,888.  Not good for funding blackholes.

So there is speculation that the tax relief on pension contributions will be capped at 20%. That means Sophie will only get £15,000 tax back from HMRC on her £40,000 contribution and will pay an additional £11,000 in 40% tax.  Killjoy will be slightly happier. 

I suspect this will be outcome in the Autumn budget however there is speculation that a compromise will be made of paying 30% for everyone. 

That means in Adam's case he will get 30% tax relief from HMRC even though he is a 20% tax payer.  Sophie is very generously giving Adam money into his pension even though they have never met.

I don't think this will actually happen.  Firstly there are more 20% tax payers than 40% tax payers. Although most 20% tax payers only make about 5% contribution of salary towards their pension, if  all 20% tax payers decided to make large contributions then overall HMRC would get less tax than the current situation since 40% payers would have to fund the larger population each getting an additional 10%.  

40% tax payers are more likely to make bigger voluntary contributions into their pension than 20% tax payers.  I suspect eliminating 40% relief will actually encourage more 40% tax payers to pay the "maximum" into their pension to get the most of their relief.  

However Pensions are what is termed a "wrapper".  A pension isnt what most people think it is.  It's a tax deferral vehicle.  You pay in now without tax and pay tax when you take it out.  Now are taxes going to be higher or lower when you retire compared to today?  Almost certainly higher. Expect tax thresholds to be frozen or fail to keep pace with inflation. So when you retire you will probably be paying more tax. 

A key benefit of the pension wrapper is you can take 25% tax free.  Now the conservatives have played around with this.  The lifetime allowance (the maximum you can pay into a pension before you are screwed in tax was abolished - largely because high paid doctors were fleeing the NHS as they were getting screwed on tax since most NHS Doctors have £1M+ pension pots). However the maximum you can withdraw tax free from a pension is now capped at  £268,275 (25% from a pension pot of £1.073M+).

Killjoy is probably looking at this number and saying it's too generous. I expect he's thinking he can get £33k extra in tax by reducing the tax three lump sum limit to £100k.  It is estimated there are 1M pension pots with £1M+ so that potentially another £33Billion in future tax revenues by lowering the threshold. 

Killjoy needs that money to fund the public sector pension black hole which currently stands at £2.4 TRILLION. Admittedly the £33Bn would only make a 0.14% dent in the ponzi scheme public sector pension black hole.  Killjoy has a gold plated final salary index linked civil service pension which those greedy state pensioners need to fund. Lucky him.

Finally I expect state pension age to be raised again. Those Greedy pensioners can keep warm by working until they are 90.  More tax revenue by working  until you die and therefore less pension liability. Win win.