Six pension changes revealed in the Budget

MILLIONS of pension savers and retirees will be affected by a raft of changes announced in today’s Autumn Statement.

From a state pension increase to cutting the winter fuel payment, Chancellor Rachel Reeves confirmed several big announcements.

Alamy

The government had already warned that the Autumn Statement would be “painful”.

Speaking in the commons today in her first Budget since becoming Chancellor, Rachel Reeves outlined a raft of pensions-related policies and changes.

Some of the changes could change your retirement plans, so it’s important to reassess now we know more about what’s coming.

We’ve rounded up all the changes and what they mean for your money.

State pension increase

As part of today’s speech Ms Reeves confirmed that July’s wages figure will be used to increase the state pension from next April.

This means that the State Pension will increase from £221.20 a week to £230.30 – or up to £473 a year.

The state pension increases every year in order to keep pace with the rising cost of day-to-day items such as food and household bills.

It is set to rise by 4.1% from next April, under what is known as the triple lock guarantee.

This system puts the state pension rate in line with whatever is highest of wages for May to July, 2.5% or September’s inflation figures.

Employee wages grew by 4.1% in the three months to July, while the UK’s rate of inflation was 1.7% in September.

And a yearly rise from £11,502 to £11,975 – a £473 increase.

Only those who receive the full new state pension will get this amount.

How much an individual will get depends on their national insurance record and the number of qualifying years they have.

You need 35 years of National Insurance contributions to qualify for the full state pension.

Older pensioners who reached age 66, the state pension age, before April 2016 will get a weekly rise from £169.50 to £176.45.

Over the course of a year, this would take their income from £8,814 to £9,175.40 a year.

Pension credit increase

Retirees who are on a low income can see it boosted via Pension Credit – and this benefit is also set to rise in line with July’s wage data at 4.1%.

The benefit is set to rise from up to £218.15 a week to £227.09 if you are single or from £332.95 to £346.60 for couples.

To be eligible for Pension Credit, your income must be lower than these thresholds.

You could also get the “Savings Credit” element of Pension Credit if you meet both of the following criteria:

• You reached State Pension age before 6 April 2016
• You saved some money for retirement, for example through a personal or workplace pension.

At the moment, you will get up to £17.01 a week if you are single but this could rise to £17.69 from April.

Meanwhile, couples currently get up to £19.04 a week but this could be boosted to £19.82 from next year.

Ending the tax threshold freeze

Pensioners are set to benefit from the chancellor’s decision to unfreeze tax thresholds from 2028 rather than extend the freeze to 2030, as had been expected.

Tax thresholds have been frozen since 2021 and were due to stay until 2028, but rumours circulated that Labour was planning to carry the freeze on until 2030 to raise extra revenue.

The ongoing freeze is set to force millions of pensioners to pay tax on their state pension for the first time over the next few years.

This is because the state pension has risen drastically in line with soaring inflation and wage growth, while tax bands have not moved – so they have been dragged over the threshold.

But once thresholds are unfrozen, some pensioners will be relieved of paying extra tax as tax brackets should go up in line with state pension increases.

Pensions brought into IHT scope

In a shock move, Labour has announced pensions will start being brought into the scope of inheritance tax (IHT) by 2027.

Currently, IHT is currently charged at 40% on the property, possessions and cash, but money saved into pensions and passed on is exempt.

But now any pension cash over the current IHT threshold of £325,000 will be taxed at the same rate.

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, said: “The generous treatment of pension death benefits has long been considered low hanging fruit for a government in search of cash.

“Today that fruit has been plucked as pensions will now be made subject to inheritance tax.

“It’s a decision that will upturn many people’s plans as we will see many more people being dragged into paying IHT”.

Mike Ambery, retirement savings director at Standard Life, warned the move will see many more people dragged into paying the unpopular death tax.

““The end result of this change is that many more people will now be brought into scope for IHT,” he said.

“This represents a fundamental shift to how wealthier individuals think about accessing their money in retirement.

“In time we’re likely to see more pensions, accessed earlier to prevent them from becoming part of people’s IHT bill at a later date.”

Confirmed pensions review

The government confirmed it will carry out its promised pensions review to help boost retirement pots in the UK.

In the King’s Speech earlier this year the government announced its intention to improve outcomes for retirement savings through a review of pensions.

The Pension Schemes Bill includes the following changes:

• A new system to enable small pension pots to be automatically combined into one place, helping to get better returns and helping savers keep track of their pensions.
• Ensuring all savers are saving into pension schemes which must demonstrate they are delivering “value for money” through a new test.
• A new requirement for pension scheme trustees, who oversee the running of pension schemes, to offer retirement income products to savers and guide them on which are most suitable.
• Creating new “superfunds” by consolidating “defined benefit” (DB) pension schemes, which pay a guaranteed income for life
• Changing the definition of a “terminal illness” to allow eligible savers to receive a lump sum payment earlier.
• Strengthening the power of the Pensions Ombudsman to help reduce costs.

Winter Fuel Payment changes confirmed

The government’s controversial changes to the Winter Fuel Payment (WFP) were also confirmed in its Budget documents.

Now, only those who claim Pension Credit or select other benefits will be able to access the WFP worth up to £300 to help with energy costs over winter.

Until now, WFP was available for everyone over state pension age, which is currently 66 for men and women.