Pensioners could be slapped with a “controversial” tax raid as part of Chancellor Rachel Reeves’s upcoming Spring Budget, analysts have warned.
Reeves may be forced to implement additional tax rises to pay for the hike in defence spending, which was announced by Prime Minister Keir Starmer earlier this week.
Analysts are sounding the alarm over a looming tax on pension payments
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Experts at business advisory firm Blick Rothenberg have cautioned that the Chancellor may need to announce further tax rises.
Neil Insull, partner at Blick Rothenberg, warned: “Lower growth projections in the OBR report will cause further jitters in the already nervous bond market and it will be no surprise if the Chancellor looks to raise tax revenues to meet her fiscal rules”.
This comes after the Bank of England recently halved its forecast for growth to just 0.75 per cent for 2025. Weak growth and higher-than-expected borrowing will put pressure on Ms Reeves to meet her fiscal rules.
One of the likely tax measures Reeves could implement is reducing the tax-free pension allowance. Currently, anyone over 55 can claim 25 per cent of their pension tax free, up to a maximum of £268,275.
Reports suggest the Government has discussed with leading pension providers about potentially reducing that figure to £100,000.
The Chancellor decided against this step in her Autumn Budget last year, which saw the Government increase the National Insurance rate for employers and make pension pots liable for inheritance tax (IHT).
Robert Salter, the director at Blick Rothenberg, said: “This would be quite controversial, as it is probably the most well-known bit about pensions for the average taxpayer.”
He added: “Changing the rules about pensions could easily be said to undermine the faith that people have in the pension system.”
Despite mounting pressure, Starmer has downplayed expectations of significant changes in the upcoming fiscal statement.
Speaking to reporters during his Washington trip, the Prime Minister said: “We are at the early stages of that, and obviously I am not going to get ahead of myself until we have made decisions.”
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Prime Minister Keir Starmer has cautioned against speculation over what will be included in the Chancellor’s upcoming Budget
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He cautioned against speculation, adding: “Let me not set hares running, the big decisions were in the Budget of last year.”
The Chancellor previously promised “one major fiscal event a year”.
However, if growth forecasts are downgraded as expected, Reeves may face difficult choices between breaking her fiscal rules or implementing further tax measures.
The Chancellor will respond to the OBR’s forecasts on March 26.
