The UK pensions industry has expressed relief that the chancellor of the exchequer Rachel Reeves has chosen not to target workplace pensions when seeking to raise tax revenues in today’s budget speech.
In the first budget speech since the Labour government came into power in July, the chancellor vowed to “restore the economic stability and begin a decade of national renewal”.
In her speech, she pointed out that the Labour government had a difficult decision to make on tax, spending and welfare to restore economic and fiscal stability “so that the government can invest in the country’s future and achieve its mission for growth”.
However, while there was expectation that pensions could be used when seeking to raise tax revenues, the Chancellor chose not to go in that direction.
Director of policy and external affairs at PMI Tim Middleton said: “There had been extensive speculation in the national press that Rachel Reeves would make a series of drastic reforms, such as changes to the tax-exempt status of the Pension Commencement Lump Sum (PCLS). It was also expected that Employer National Insurance Contributions (NICs) were to be charged on employer contributions to registered pension schemes.
“We are both relieved and delighted that even in such difficult economic circumstances the importance of our workplace pension system has been recognised and respected,” he said.
Jamie Fiveash CEO of Smart Pension said he is “reassured” that pension changes haven’t been rushed and that the government seems to be using the pensions review to focus on key issues “carefully avoiding unintended consequences that could harm savers’ trust and discourage pension saving”.
Fiveash said: “Aside from bringing pensions into the parameters of inheritance taxation, we’re glad that pension pots have remained largely untouched. Increasing the complexity of a pension system that many already do not fully understand can create confusion and make important decisions even more challenging.”
Fiveash added that there are some “straightforward” changes that could and should be done soon, for example the expansion of auto enrolment.
He said: “A timetable of these and similar changes would have been useful, though we are supportive of the government using the pension review to collect industry thoughts and implement considered changes in the upcoming Pension Bill.”
David Brooks, head of policy at Broadstone also welcomed the absence of workplace pensions from this budget. However he added that one change of note is the decision to bring inherited pensions into the scope of inheritance tax from April 2027.
He said: “By restoring the principle that pensions should not serve as a means to accumulate capital for inheritance purposes—similar to the regulations in place prior to the 2015 reforms—this policy will require many to rethink their estate planning strategies.”
Brooks said that Broadstone anticipates the Chancellor will place a stronger emphasis on pensions in the upcoming Mansion House speech in November.
The pensions minister previously confirmed that a summary of the first part of the pension review is imminent, and the second part of the review which is due to look at adequacy and wider issues, will also be launched around this period.
Brooks said: “The Pension Schemes Bill, likely to be before the House Spring/Summer 2025, also gives us plenty to look forward to, discuss and plan for, from a pensions perspective.
“It remains possible that some of the thornier issues for reform, which could well be beneficial to many millions, will be given due consideration in this process to ensure the pros and cons are thought through and understood,” he said.
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