The FT speculate on the options John Healey is weighing up to balance up the give-aways in next month’s budget.
Pensions feature prominently in the FT’s guess on John Healy’s thinking on budget taxes.
Pensions
There are several changes that Healey could make to tax reliefs on pensions — but they are politically hugely perilous.
One option is to restrict the tax relief available on pension contributions to the basic rate of income tax. This could raise as much as £22bn a year, according to a 2025 report by the IFS.
Healey could alternatively choose to reduce the “lump sum” of 25 per cent, up to a limit of £268,275, that individuals can take out of their pensions free of income tax. However, Sir Steve Webb, a former pensions minister and partner at pension consultants LCP, said: “It mucks up people’s retirement planning and it’s politically toxic.”
Any changes to pensions would come at a time of upheaval for a sector that prizes stability.
Reeves last year announced a Budget tax raid that will reduce the amount of money people can sacrifice from their pay cheques to put in pension pots without paying national insurance.
Another proposal that has garnered support among think-tanks is the removal of the so-called “triple lock”, under which the state pension increases in line with inflation, average earnings growth or 2.5 per cent. But Labour has committed to maintaining the triple lock until the end of this parliament.
The main political problem faced by arguments for abolishing the triple lock is that it doesn’t save any money over the period up to the next election. We already know it won’t be triggered for the 2027 increase. It now looks most unlikely that it will be triggered for the 2028 increase. And even if it were triggered for the 2029 increase, the idea that it would be removed just before an 2029 election, is for the birds. Why go through the agony of abolition, think winter fuel allowance, when it saves no money. Even in the longer term the supposed savings are highly contingent on assumptions about price and earnings increases that are open to question.
I suspect you mean that the 2.5% floor won’t be the binding element in 2027?
The earnings part of the triple lock does seem to be determining the likely 2027 increase according to IFS and others.
The earnings increases that can now be expected in2027, 2028 and, probably, 2029 are not part of the triple-lock. It’s what’s in the legislation and would continue if the government abandons the triple-lock. I don’t know of any serious commentator that supports lower increases for the New and Basic State Pensions. Because we know from what happened between 1980 and 2010 is that price increases lead to high levels of pensioner poverty.
I stand corrected. My apologies.
The only overrides to that 2007 legislation were during Covid when the earnings link was temporarily suspended, and hopefully we won’t see anything similar again before 2029.
The DWP has responded to calls for the State Pension to be increased to at least £14,500 a year – with more than 23,000 people now having signed the campaign.
The petition, created by Richard Sobey MBE, calls for the minimum State Pension to be brought into line with the National Minimum Wage for under-18s by the Department of Work and Pensions.
By earlier this week it had attracted 23,355 signatures and remains open until January 28, 2027.
If it reaches 100,000 signatures, it will be considered for debate in Parliament.
The campaigner argues that pensioners who have spent decades paying National Insurance should not receive less than the minimum amount younger workers can earn.
Sobey says: “The National Living Wage age for 21+ is now £23,132 (35 hour week; 52 week year). Even the National Minimum Wage for under 18’s is £14,560 (same basis). My full New State Pension is only £12,564 after working for a lifetime.”
The petition states: “The full New State Pension lags well behind those in Europe (UK only 13th of 28).”
It goes on to highlight the difference between pension payments and minimum wage rates for younger workers.
“Even an apprentice, or under 18 worker, is now legislated to earn a salary of at least £14,560.”
The petition states: “The full New State Pension lags well behind those in Europe (UK only 13th of 28).”
It goes on to highlight the difference between pension payments and minimum wage rates for younger workers.
“Even an apprentice, or under 18 worker, is now legislated to earn a salary of at least £14,560.”
Richard Sobey is a retired director and energy consultant who served the UK oil and gas industry, for which he was appointed an MBE.
The DWP has responded, confirming that it has no plans to make the State Pension equal to the National Minimum Wage for under-18s.
It said the full new State Pension had risen to £241.30 a week following an increase in line with average earnings.
The DWP also pointed to the Government’s commitment to the Triple Lock, under which the State Pension is increased each year by whichever is highest of average earnings growth, CPI inflation or 2.5%.
The earnings component used for the legislative basis for State Pension covers the whole economy—average wage growth across both the public and private sectors combined.
The Office for National Statistics (ONS) Average Weekly Earnings (AWE) dataset tracks total pay growth (including bonuses, so
they say …).
It’s said to measure the annual growth rate across the whole UK labour market for the May-to-July period of the previous year.
Large bonuses paid outside the May–July window don’t count in that year’s May–July AWE year-on-year comparison, nor do back dated pay settlements, even if relating economically to the preceding year.
That makes the earnings factor a measure of employee pay movements, but not, I would suggest, a robust measure of underlying wage or salary inflation.
I’m overthinking all this, I know, and am happy for now to fall back on Bryn’s rule of law argument.