Reports last week signalled that Chancellor Rishi Sunak and his colleagues at the Treasury are drawing up plans for a pensions tax raid in the autumn. After the coronavirus pandemic has ravaged the UK economy, the proposal has been formed as a way to help pay for state support during the crisis. A number of methods are being considered, the Telegraph reported, including reducing the pension lifetime allowance.
Another plan would see individuals contributing to pensions getting the same rate of tax relief, meaning higher-rate taxpayers lose out, while a third is new taxation on employer contributions.
Reports have also indicated that there is division between Mr Sunak and Prime Minister Boris Johnson over how to pay for the pandemic, as the Chancellor pushes for a more frugal approach.
Steve Webb, a former pensions minister who is now a partner at consultants Lane Clark & Peacock, warned that the changes would hit Tory voters and be politically risky.
He urged Mr Sunak not to change the existing pension system.
He said: “If you want 200 more Chesham and Amershams, put together a package like this on pensions tax relief.
“It’s absolutely targeting your base. It is people who are working, earning a good wage and being frugal.
“Of all subjects, pensions should be a long-term business. People are planning for a generation. What they can’t have is constant chopping and changing of the pension rules because the country is broke.”
The Government has tried to reassure people this month that it will not renege on a key manifesto promise – the pension triple lock,
It promises that each year state pensions will rise by whichever is highest – average earnings, inflation or 2.5 percent.
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But average earnings have jumped by around six percent during the Covid crisis as lower-paid jobs were lost, triggering a similar rise in pensions.
The state pension is on track to grow at least six times faster than workers’ average earnings during the pandemic if the Government’s so-called triple lock policy is left intact.
Between 2020 and 2022, the state pension is set to rise by more than 11 percent. Over the same period, many thousands of working age people have lost their jobs due to the ravages of lockdown – and average wages will rise by just 1.8 percent.
The disparity has been driven by the triple lock, which means the annual rise in the state pension is pegged to the highest of three measures: average wage growth, inflation, or 2.5 percent.
Pensions director at Aegon, Steven Cameron, said there may be another Budget this year in which hikes could be issued, including a potential removal of another manifesto pledge.
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He told Express.co.uk earlier this year that the pension triple lock could be ditched.
Mr Cameron said: “We are anticipating another Budget before the year ends, so we think there’s every chance there will be another Budget maybe in November.
“Sunak did say that it is too early to to make detailed fiscal policy announcements. We still don’t know the full costs of furlough and other support schemes. We still don’t know the full impact on the economy.
“I do expect he will be making further changes which could be of a detailed and wide-ranging nature. We shouldn’t assume that because he didn’t announce things, he won’t be thinking about them as longer term measures.
“We have got a manifesto commitment on the pension triple lock and tax triple lock, with all of these locks he’s got more locks than Houdini to grapple with.
“At some point, the Government might decide we have to be open with the public and say, ‘If we stick with these manifesto commitment we will have too many restrictions to do what is right to do.’
“He’s not done it so far, but in future there may come a time when he has to level with the public.”