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Pensions 2025: rumoured tax raids, means-testing the triple lock and more

Amid suggestions the Government could have pension savings in the crossfire yet again, we examine the latest rumours from Westminster.

Alarmingly, cash-strapped pensioners look set for another rocky year.

According to numerous media reports, the Government has refused to rule out another attack on pension savings.

One of the feared options is that Labour will reduce the amount people can withdraw from their fund tax-free at the age of 55, from up to £268,275 to as little as £40,000.

This move would allegedly add £2 billion to Government coffers.

Likewise, there have been suggestions that the Government could slash the amount you can contribute tax-free into a pension.

For most Brits, this is presently £60,000.

According to some rumours, these changes could come into force as early as March 2025.

Political hot potato

And the situation has already garnered significant attention.

Former pensions minister Steve Webb said:

“We really don’t want more rounds of speculation before every Budget.

“So, a clear commitment to leave pension tax relief alone for the lifetime of the Parliament would be exceptionally welcome.”

Likewise, another former pensions minister Ros Altmann claimed that it has been clear since the election that pensions are in jeopardy.

So, where next for retirees?

Everything you need to know about pensions

A £150 billion bill for taxpayers?

But what is the cost of pensions to the average Brit?

The full Basic Rate payment for State Pensions stands at £221 per week for the 2024/25 tax year.

This is paid to almost 13 million retirees and costs the Treasury £125 billion annually.

However, the ageing population has led many to question if the State Pension system is viable over the longer term, with the bill set to soar to £150 billion over the next decade.

Worryingly, think tank The Adam Smith Institute estimates the State Pension could be unaffordable by 2035, with payments outstripping National Insurance contributions.

According to data from the Office for Budget Responsibility, pensions liability will be £23 billion higher in the 2020s than previously estimated.

6 of the biggest financial worries for pensioners – and how to fight back

Triple lock under fire from the Opposition?

During a radio interview last week, Conservative leader Kemi Badenoch announced that her party would look into means-testing the triple lock.

Under this system, State Pensions rise every year in line with inflation, average earnings growth or by 2.5%, whichever is higher.

If means-testing goes ahead, only the poorest retirees would benefit from this generous rise – previously available to all older people.

Interestingly, the Conservative Party has now denied these plans, claiming Badenoch’s remarks had been misrepresented by Labour and the Liberal Democrats.

Slashing pensioner incomes

That said, there have been ongoing questions about the feasibility of the triple lock.

Shadow Chancellor Mel Stride believes the triple lock is “unsustainable”.

Ironically, the Tory Government introduced the policy in 2012, although much has changed over the past 15 years.

How bad habits affect your annuity retirement income

The value of Pension Credit

If means-testing of the triple lock comes into effect, it would likely mean those eligible for Pension Credit are most likely to qualify.

This is an additional benefit open to retirees on a low income.

During the current tax year, it brings the weekly income for a single person to £218.15 and that of a couple to £332.95.

It also acts as a gateway benefit to other allowances, such as Winter Fuel Payments – and potentially the future triple lock.

Pension benefits & entitlements: broadband deals, Council Tax Reduction, Savings Credit, Pension Credit & more

Budget 2024: recap

So, what has already happened since the change in Government?

One of the most significant surprises in 2024 came via Chancellor Rachel Reeves announcement that unused pension benefits will be subject to Inheritance Tax (IHT) from 2027.

Her announcement effectively reversed a decision by former Chancellor George Osborne in 2015 in which he declared pension pots would be exempt from IHT.

Comment: it’s time to dispel the myth that pensions are tax-free

Have your say

What do you make of the rumoured pensions raid? Is it just more bad news following a painful Budget? Or perhaps you believe the triple lock ought to be means tested for the ongoing sustainability of the public purse?

Maybe you think these perks should only be available to those struggling in later life, excluding wealthier retirees.

We’d love to hear your thoughts in the comments below.

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