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.