Massive rise in
employer national insurance costs likely to mean lower pension
contributions and future pay rises: The biggest revenue
raising measure in the Autumn Budget by far, is the massive rise
in Employer National Insurance contributions. Raising the
rate to 15% and also cutting the starting threshold to £5000 is a
significant increase in labour costs. Coupled with the much
higher minimum wage, employers will be looking for ways to reduce
overall labour costs. Obviously, this risks lower pension
contributions and future wage rises. (Interesting to see, in the
costings tables, that public sector employers will be reimbursed,
costing taxpayers nearly £5bn a year.
Ending inheritance
tax exemption for unused pots will reduce older pensioners' funds
leaving more poorer elderly pensioners in future:
Pensioners who pass away without having spent all the money in
their pension funds will no longer be able to pass the unused
funds to their children without being taxed at 40%. This will
mean pensioners will be encouraged to spend their pension while
still relatively young, leaving much less to live on if they
survive to older age. Most people underestimate their life
expectancy, so they are likely to have spent their pension well
before they reach their much later years, therefore potentially
having less to live on than they otherwise would and less money
to spend on elderly care.
Ending pensions being
inherited free of inheritance tax undoes many people's estate
planning and will penalise younger generations: This
change will undermine the pension prospects for younger
generations. All Defined Contribution pension funds can currently
be used as a pension fund for the next generation, and those who
die relatively early have been able to pass on their funds as a
pension for their offspring. Taking away that ability in 2027 is
a really bad decision in my view. The pension fund does not
escape tax altogether (unless someone dies before age 75 and that
exemption should have been closed). Those who inherit a pension
fund still have to pay tax on the money at their marginal rate
when they withdraw it. Therefore, tax is still paid, but it
can form the basis of better pensions for younger generations who
tend to be less well-pensioned than older people.
Other ways in which
older people lose out from this budget: Older people
tend to rely more than others on investments and savings they
have set aside for their future, including income from dividends,
or a second property. They will also be hit by the increases in
capital gains tax.
Triple lock rises
sound great, but are much less generous for older
pensioners: The State Pension triple lock only applies
to the full new State Pension. Any pensioner beyond their
early-seventies is on the old state pension system and only their
Basic State Pension is covered by the triple lock. Much of their
State Pension comes from the Additional Pensions like SERPS or
S2P and these parts only rise by cpi next year, so they are
losing out relative to the younger ones.
The Higher State Pension will also drag
more pensioners into the tax net as thresholds stay
frozen: The full new State Pension is rising to
£11,962.60 from April 2025, from this year's £11,500. This means
many pensioners with no more than their State Pension will be
tipped over the personal tax threshold for the first time and
placed at risk of not knowing they are liable for tax, or not
paying it on time and being penalised. Many of them should hear
directly from HMRC about paying income tax, and have a Simple
Assessment Form, but some older pensioners who do not realise any
tax alerts apply to them, may inadvertently not pay tax, as they
have never paid it before. I hope the Government will look
carefully at arrangements for pensioners in this position so they
are not penalised unfairly.
