The inevitable pre-budget speculation on pensions

BlackKnightMonty

Eldi_Dos said:

BlackKnightMonty said:

RogerPensionGuy said:

Cobbler_tone said:

Today I have read about a 2p increase on IC and 2p reduction on NI. Reducing or scrapping NI relief on salary sacrifice. Reducing the TFLS to £100k. Extending the freeze on tax bands.
They may not do any of them but at the same time could do all of them. If they did I think some posters on here would go into meltdown. Being close to retirement could mean a case of damage limitation but I’m sure they’ll be an impact somewhere but hopefully not enough to change my plans.

With the current blackhole, economic outlook/GDP/age demographics etc and having in place a sensible headroom for the following few budgets, pulling a fair few levers looks very likely to me.

Only one item comes to mind that they won't pull on, state pension tripple lock. 

We will see on the 26th.

Shame, it’s breaking the economy, and quite frankly society.

Suppose if you repeat a mantra often enough some people will start to believe it.

Talk to anyone under 40 about what they think of the triple lock…

aroominyork

ukdw said:

ukdw said:

Re the latest speculation relating to increasing -the basic rate of income tax from 20% to 22%.

If no other allowances change - then thinking about this from people taking a range of net pensions.

2% doesn't sound that much - but it is a 10% increase.

If my calculations are correct, then for someone currently on £25k net - they will lose £311 in extra tax if they don't increase their level of drawdown.   To get back to £25k they would need to increase drawdown by £398 gross (from £28,108 to £28,506).

At the other end of the 20% scale.  Someone currently on £42.7k net - would lose £753 if they leave their gross at £50,233.   To get that £753 back - they would need to push their gross up into the 40% band - by £1,244 I think (from £50,233 to £51,477).

What are you going to do if it happens - the choices seem to be:

1. Leave current gross drawdown level  as is, pay more tax and get less income.

2. Increase drawdown to get the same income back and pay even more tax.

3. Lower drawdown amounts - to pay the same or less tax, and accept an even lower income.

I will probably just leave my drawdown untouched and accept the extra tax hit and income loss.

I wonder if is worth maximising the 40% band for the rest of the current tax year - if it is going up to 42% (and maybe even higher in later years).

Also, whether to draw down from a SIPP to the top of the 20% band, to avoid future withdrawals on that money being charged at 22%. It would be the tail tax wagging the total return dog and would only make sense in certain situations, eg selling a SIPPed gilt fund and buying an equivalent duration nominal gilt (and then watching the duration reduce). 

eastcorkram

BlackKnightMonty said:

Eldi_Dos said:

BlackKnightMonty said:

RogerPensionGuy said:

Cobbler_tone said:

Today I have read about a 2p increase on IC and 2p reduction on NI. Reducing or scrapping NI relief on salary sacrifice. Reducing the TFLS to £100k. Extending the freeze on tax bands.
They may not do any of them but at the same time could do all of them. If they did I think some posters on here would go into meltdown. Being close to retirement could mean a case of damage limitation but I’m sure they’ll be an impact somewhere but hopefully not enough to change my plans.

With the current blackhole, economic outlook/GDP/age demographics etc and having in place a sensible headroom for the following few budgets, pulling a fair few levers looks very likely to me.

Only one item comes to mind that they won't pull on, state pension tripple lock. 

We will see on the 26th.

Shame, it’s breaking the economy, and quite frankly society.

Suppose if you repeat a mantra often enough some people will start to believe it.

Talk to anyone under 40 about what they think of the triple lock…

I'm a pensioner and don't agree with the triple lock!

german_keeper

BlackKnightMonty said:

Eldi_Dos said:

BlackKnightMonty said:

RogerPensionGuy said:

Cobbler_tone said:

Today I have read about a 2p increase on IC and 2p reduction on NI. Reducing or scrapping NI relief on salary sacrifice. Reducing the TFLS to £100k. Extending the freeze on tax bands.
They may not do any of them but at the same time could do all of them. If they did I think some posters on here would go into meltdown. Being close to retirement could mean a case of damage limitation but I’m sure they’ll be an impact somewhere but hopefully not enough to change my plans.

With the current blackhole, economic outlook/GDP/age demographics etc and having in place a sensible headroom for the following few budgets, pulling a fair few levers looks very likely to me.

Only one item comes to mind that they won't pull on, state pension tripple lock. 

We will see on the 26th.

Shame, it’s breaking the economy, and quite frankly society.

Suppose if you repeat a mantra often enough some people will start to believe it.

Talk to anyone under 40 about what they think of the triple lock…

I suspect the vast majority wouldn't have a clue what you were talking about.

QrizB

Silvertabby said:

westv said:

Increasing IT by 2% and reducing NI by the same amount makes no sense to me and I am confident no such thing will happen.
I am also confident that there will be no changes to pension saving incentives.

The tax and NI jiggle, if it happens, would mean that Labour can claim that they are sticking to their promise not to increase taxes for 'working people'.  Pensioners - including those who still work, but who are exempt NI - were never made any such promises.

If Rachel Reeves is reading this thread, I hereby suggest that she extends the scope of NI to include unearned income - which would keep the promise of "no tax increases for working people" but still raise a few quid ...

ukdw

BlackKnightMonty said:

ukdw said:

ukdw said:

Re the latest speculation relating to increasing -the basic rate of income tax from 20% to 22%.

If no other allowances change - then thinking about this from people taking a range of net pensions.

2% doesn't sound that much - but it is a 10% increase.

If my calculations are correct, then for someone currently on £25k net - they will lose £311 in extra tax if they don't increase their level of drawdown.   To get back to £25k they would need to increase drawdown by £398 gross (from £28,108 to £28,506).

At the other end of the 20% scale.  Someone currently on £42.7k net - would lose £753 if they leave their gross at £50,233.   To get that £753 back - they would need to push their gross up into the 40% band - by £1,244 I think (from £50,233 to £51,477).

What are you going to do if it happens - the choices seem to be:

1. Leave current gross drawdown level  as is, pay more tax and get less income.

2. Increase drawdown to get the same income back and pay even more tax.

3. Lower drawdown amounts - to pay the same or less tax, and accept an even lower income.

I will probably just leave my drawdown untouched and accept the extra tax hit and income loss.

A further twist in the rumour mill. So it sounds like
20% band up to 22%.
8% NI band down to 6%.
40% tax band up to 42%,
60% tax band up to 64%, (I think)
45% tax band up to 47%.
2% NI band left as is.
Total gain - mainly from pensioners & landlords and top third of earners - about £6bn according to my newspaper.

So my previous calculation may need to be tweaked a bit as people going into the 40% band to offset the £751 loss will now be going into the 42% band - so will need a bigger increase.

I presume the changes won't go into effect until 6/4/26.

I wonder if is worth maximising the 40% band for the rest of the current tax year - if it is going up to 42% (and maybe even higher in later years).

Also makes me wonder whether the IHT rate might go to 42% too.

That looks highly unlikely to me; as this is a massive change to income tax.

Such change would raise more than £6bn I would have thought?

Almost looks like the Scottish rates!

Looking back at the newspaper article - the origin of the £6bn figure is this paper

https://www.resolutionfoundation.org/app/uploads/2025/09/Call-of-duties.pdf

And this section.   I would imagine based on the origin of the report and the fact that there is no mention of  Laffer Curve in the report real world additional tax raising may end up being less than the calculated figure.

Although my assumption about keeping the 2% band for everyone isn't in this table - so the amount raised may actually be higher than £6b if they do that (which I had assumed from yesterdays definition of "working people" as being people in the bottom 2/3 of income range).

westv

Silvertabby said:

westv said:

Increasing IT by 2% and reducing NI by the same amount makes no sense to me and I am confident no such thing will happen.
I am also confident that there will be no changes to pension saving incentives.

The tax and NI jiggle, if it happens, would mean that Labour can claim that they are sticking to their promise not to increase taxes for 'working people'.  Pensioners - including those who still work, but who are exempt NI - were never made any such promises.

Won't happen. They got their fingers burnt when they tried to reform the WFA so are unlikely to want to incur the "wrath" of pensioners so soon after.

Grumpy_chap

ukdw said:

So it sounds like
20% band up to 22%.
8% NI band down to 6%.
40% tax band up to 42%,
60% tax band up to 64%, (I think)
45% tax band up to 47%.
2% NI band left as is.

I hope if that is the way the Government is thinking, they look at it set out like that and notice the absurdity of the band where the withdrawal of the PA is covered and do something to normalise that to a more progressive line.  Perhaps start the 45% (47%) band at a lower threshold, or raise the 45% (47%) rate.  Removing the impact arising from withdrawal of the PA would avoid the negative behaviours that result from the current system.

Silvertabby said:

The tax and NI jiggle, if it happens, would mean that Labour can claim that they are sticking to their promise not to increase taxes for 'working people'.  Pensioners - including those who still work, but who are exempt NI - were never made any such promises.

Presumably the manifesto commitment not to increase taxes for 'working people' included pensioners who still work?

hugheskevi

Grumpy_chap said:

ukdw said:

So it sounds like
20% band up to 22%.
8% NI band down to 6%.
40% tax band up to 42%,
60% tax band up to 64%, (I think)
45% tax band up to 47%.
2% NI band left as is.

I hope if that is the way the Government is thinking, they look at it set out like that and notice the absurdity of the band where the withdrawal of the PA is covered and do something to normalise that to a more progressive line.  Perhaps start the 45% (47%) band at a lower threshold, or raise the 45% (47%) rate.  Removing the impact arising from withdrawal of the PA would avoid the negative behaviours that result from the current system.

The political optics make that impossible.

There is no way a Govt could simultaneously increase tax on pensioners whilst giving a tax break to those with incomes over £100,000+. That applies no matter how absurd the system is, or how well designed the fix was, even if it was cost neutral (unless no single individual would be better off).

The vast majority of individuals have no idea how anything related to tax works, and headlines of "Tax giveaway to 6-figure earners funded by pensioners" accompanied by pictures of poor pensioners sitting next to a gas fire in winter next to city workers in suits drinking champagne would be both inevitable and politically intolerable.

This is a big weakness of our political system - there are many things which could be easily improved upon, but the political challenge and the challenge of moving from where we are to a new system are massive challenges. Hence inferior systems have to be left alone until such a time that they can be dealt with. That is realistically only going to be as part of a big overhaul of tax, or part of a wider package of tax cuts, where lower earners get a tax break too. Neither look likely anytime soon. Sometimes the start of a new administration offers an opportunity for change as people will have forgotten by the next election and it can be presented as making unpopular but necessary changes, but again that isn't going to happen anytime soon.

BlackKnightMonty

hugheskevi said:

Grumpy_chap said:

ukdw said:

So it sounds like
20% band up to 22%.
8% NI band down to 6%.
40% tax band up to 42%,
60% tax band up to 64%, (I think)
45% tax band up to 47%.
2% NI band left as is.

I hope if that is the way the Government is thinking, they look at it set out like that and notice the absurdity of the band where the withdrawal of the PA is covered and do something to normalise that to a more progressive line.  Perhaps start the 45% (47%) band at a lower threshold, or raise the 45% (47%) rate.  Removing the impact arising from withdrawal of the PA would avoid the negative behaviours that result from the current system.

The political optics make that impossible.

There is no way a Govt could simultaneously increase tax on pensioners whilst giving a tax break to those with incomes over £100,000+. That applies no matter how absurd the system is, or how well designed the fix was, even if it was cost neutral (unless no single individual would be better off).

The vast majority of individuals have no idea how anything related to tax works, and headlines of "Tax giveaway to 6-figure earners funded by pensioners" accompanied by pictures of poor pensioners sitting next to a gas fire in winter next to city workers in suits drinking champagne would be both inevitable and politically intolerable.

The solution is simple.

Just scrap the personal allowance for everyone and it fixes the £100k trap and raises billions in tax.