As we enter the new financial year, AJ Bell estimates that interest payments on public debt have risen from £37.5bn to £67bn in 2021/22 after increased focus on the Covid-19 crisis has dominated Sunak’s last two budgets.
This effectively means that around half of the money the Government currently borrows is used to service its debt, AJ Bell added, noting: “It’s a precarious position for any Chancellor.”
Mike Coop, chief investment officer of Morningstar Investment Management, agreed the industry could not expect “a free lunch of freebies” with more stimulus putting pressure on the Bank of England (BoE) to quit. ‘it raises interest rates even more.
The current rate of 0.75% was set on March 17 and is the third rate move in the past four months after being held at an all-time high throughout the pandemic.
The Pensions Lifetime Allowance (LTA) was frozen at its current rate of £1million by the Chancellor in last year’s Autumn Budget.
Rumors that the government could raise up to £250million a year from the freeze were more than confirmed in government budget documents, which later confirmed the total impact would be closer to £1billion sterling.
“In a low inflation environment, this freeze has less impact, but in the longer term with a significant rise in inflation, the impact could be much greater,” said Justin Corliss, senior technical director of pensions. of Royal London. “Many more people could be hit by a tax burden, including more NHS doctors. This could lead to more early retirement and reduced working hours to avoid the burden, at a time when doctors are most needed.”
Corliss noted that ATL will likely be felt more widely in society, although it is designed to impact only a small number of individuals.
“So there will be pressure to re-establish the link with inflation,” he explained.
A freedom of information request from Lane Clark & Peacock to HM Revenue & Customs last summer found that more than 325,000 savers had taken advantage of special rules allowing them to avoid LTA caps.
But pensions and savings chief Becky O’Connor said it was “unlikely” the Chancellor would make any big moves.
She added: “However, as stock markets are volatile and some uncrystallized pension pot values have fallen since being ‘tested’ against the LTA for a tax charge, it would be worth the Chancellor considering concessions that allow for retesting at a later date after age 75 – the age at which the value of benefits taken is retested, otherwise many could run the risk of being taxed on investment growth from which they ultimately do not benefit.”
A commonly reported target for potential reform in any budget – pension tax is again on the industry agenda this year.
O’Connor said pension tax relief is “the secret weapon of long-term savers and investors”.
“Cutting it now would be very detrimental to the future financial well-being of the nation in retirement and could ultimately make even more people dependent on the public pension in years to come,” she added.
O’Connor noted that it remains difficult to calculate how much of a tax break would be a deterrent to saving in retirements.
While savers “may need to lock in their money until age 55 (or 57 from 2028)”, O’Connor said the price is “worth paying”.
“In today’s market, you’d be hard pressed to find another investment that offers such an improvement for nothing,” she said. “It’s free money.”
Long-awaited changes to the EI exam from 2017 have yet to be legislated and are one of the key measures the Investing and Saving Alliance (TISA) says it expects from the spring statement.
Strategic Policy Director Prakash Chandramohan said: “The government must urgently implement the agreed changes in EI to ensure the continued success of the scheme, so that everyone can rest assured that they are saving for a adequate pension.
“Improved EI and increased access to financial advice, if implemented, would have a positive impact on millions of UK financial service consumers and bring significant long-term benefits to the economy. British.”
Pension chief Renny Biggins added: “We believe these proposals should be enshrined in legislation no later than 2022 and implemented no later than 2025. This recognizes the significant impact that Covid-19 has had on the finances of employees and employers while allowing time to emerge from the current cost of living crisis.
“This would give employers and employees ample time to prepare for these significant changes, while providing crucial certainty that they will be incorporated into legislation.”
The government confirmed the triple lockdown freeze six months ago – a move which means rising state pensions are no longer guaranteed by the higher of inflation, average income growth or 2.5%.
Royal London director of policy and external affairs Jamie Jenkins said rising inflation “could present a similar dilemma to the earnings inflation figure last year”, meaning the repeating the formula which determines the annual income of the state pension could be irrelevant.
“From next month, pensioners will receive a 3.1% increase in their state pension, instead of the 8.3% they would have received if the income component had not been abolished”, a- he declared. “It’s a blow to older people who already spend a higher percentage of their income on food and fuel.”
An Interactive Investor study has found pensioners could be up to £1,000 in the red in the 12 months from April as the cost of basic necessities begins to outstrip the state pension.
O’Connor said the Chancellor ‘must find a way to reassure the millions of pensioners who cannot afford to live at this time’.
“Almost half of people over retirement age depend on state pensions for their retirement income,” she warned. “Retirees can’t get out and get out of a cost of living crisis. Without help, they could end up in debt, which is very difficult to get out of when you have no income and your costs exceed your pension. .
“The Chancellor must commit to restoring the triple lock in time as promised and to providing emergency aid to prevent poverty among the elderly before the triple lock is restored.”
Secretary of State for Work and Pensions Thérèse Coffey confirmed earlier this week that the government was committed to the triple lockdown, despite the economic difficulties of maintenance.
Aegon’s director of pensions, Steven Cameron, said Coffey’s comments would reassure “seriously disappointed” pensioners.
“Looking ahead, there is a good chance that state pensioners will experience an exceptional increase in April 2023,” he added. “The BoE’s latest forecast is that inflation could reach 8% in the spring and could be even higher later in the year. The April 2023 increase will include inflation through September 2022, which could then being close to its peak of 8% or more, the triple lock will pay for that, or even more if earnings growth is higher again.”
Cameron continued: ‘Without any government tinkering, this could put state pensioners on target for an exceptional 8%-plus increase in 2023, potentially the biggest increase on record, offsetting the relatively small increase of April.”