Workers are set to lose as much as £720 each from their pension from October’s looming ‘painful’ Labour budget, financial experts fear.
Pension changes could affect workers from October (Image: Getty)
Workers who have pensions could face losing as much as £720 due to a tax change Labour may announce in its upcoming October budget.
Prime Minister Keir Starmer has warned the UK that its Budget next month will be ‘painful’, pointing to an alleged £22bn ‘black hole’ in the public finances that needs to be plugged.
The £300 Winter Fuel Payment has already been changed to means testing and a slate of other unpopular changes are also being feared.
Although Labour has pledged not to raise Income Tax, VAT or National Insurance, there are other changes which could be in the pipeline including Inheritance, Capital Gains Tax and pensions.
Various changes to pensions could be made next month. As well as changing the rate of tax relief from being income linked to a flat rate, one possible change centres around the Pension Contribution Allowance.
Currently, even if you have no income, or if you’re drawing a pension, you are able to contribute up to £2,880 a year into a SIPP, a form of private pension pot, which is then ‘topped up’ with tax relief up to £3,600.
This effectively hands you £720 a year but those taking advantage of the tax loophole are worried Labour will target it in its October budget.
Speaking on Reddit, u/klawuk said: “As I understand it, even if you have no income and/or are drawing a pension, you’re still able to contribute up to £2,880 a year into a SIPP which is then topped up with tax relief to £3,600 – so £720 tax relief.
“Is there any reason why you wouldn’t just do this every year? In theory can’t you contribute £2,880, it gets grossed up to £3,600 the next year, putting £2,880 of it back into the SIPP for next year?”
U/amlv3028 replied: “As far as I understand it, that’s correct but I think it’s up to the age of 75 you have to stop then. I do worry that this is one of the things Labour might get rid of and I lose 720 quid a year in my retirement.”
HMRC clarifies exactly how the rule works.
It says: “If you do not pay income tax, you still automatically get tax relief at 20 percent on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you: you do not pay Income Tax, for example because you’re on a low income; your pension provider claims tax relief for you at a rate of 20% (relief at source).”
Labour has not yet confirmed which taxes and benefits are definitely going to be changed in its next budget aside from Winter Fuel Payments, but Sir Keir Starmer admitted that the changes will be ‘painful’.
