Having snatched the Winter Fuel Payment from 10million pensioners, chancellor Rachel Reeves could do anything. In many cases there’s nothing people can do about it, but you still have a few options.
First step, don’t panic. Act in haste and you could repent at leisure, especially at this late stage, when any financial decision will have to be a snap one.
We still can’t say for sure what Reeves will do. Basing key financial decisions on speculation is risky at any time. Yet some measures could pay off whatever happens, so I’ll concentrate on those.
Check eligibility for Pension Credit. Up to a million pensioners are eligible for this means tested state pension top-up, but fail to claim.
Now they have an extra incentive to do so, as only successful claimants now get the Winter Fuel Payment.
Pension Credit tops up a single pensioner’s income to £218.15 a week, or £11,343.80 a year. This could be worth an extra £2,529 a year for someone on the basic state pension.
Pension Credit also acts as a gateway for Housing Benefit, Cost of Living Payments, Council Tax Reduction, mortgage interest support, a free TV licence from age 75, help with NHS dental treatment, glasses and transport costs for hospital appointments, and the Warm Home Discount Scheme.
Pensioners are likely to need all the state support they can get after tomorrow’s smash and grab.
Pay money into a pension. Labour sources have poured cold water on reports that Reeves will slash higher-rate tax relief on pension contributions.
Until then, many higher earners were throwing money into pensions, to ensure they still got tax relief at 40% or 45%.
That said, paying money into a pension is a good idea at any time, provided you understand you won’t be able to access your pot until age 55.
While tax relief looks safe, there is a danger that Reeves could slash the pensions annual allowance, which allows people to pay 100% of their salary into a pension each year, up to a maximum £60,000.
Former chancellor Jeremy Hunt only hiked the annual allowance from £40,000 in March 2023, so it would be simple for Reeves to reverse it.
It may be too late to sort the admin out before the Budget, but any cut may not come into force until the new tax year on April 6, 2025. So get ready.
You can also carry forward any unused annual allowance from the previous three tax years. For now. Reeves might also take the knife to that.
Consider pension withdrawals, but be careful. Speculation that Reeves will cap the 25% pension tax-free lump sum has sparked a rash of pre-Budget withdrawals.
Today, pension savers can withdraw tax-free cash up to £268,275, but Reeves may limit that to just £100,000.
This will only affect those with more than £400,000 worth of pensions.
It may be too late to make withdrawals if Reeves cuts the cap with immediate effect. If worried, talk to your pension company (if their telephones aren’t blocked by panicky callers).
Money is best kept in a pension until you need it. So think carefully before making withdrawals.
Use your ISA allowance. By comparison, this is a relative no-brainer. Every year, adults can invest up to £20,000 in a cash ISA or stocks and shares ISA, with all returns free of income tax and capital gains tax.
That £20k is pretty generous and Reeves could slash it back. Clearly, it favours higher earners.
So if you have cash to hand, it may be worth switching it into your ISA allowance today. Although in practice, Reeves almost certainly won’t cut the allowance until next April. If she cuts it at all.
Alternatively, she could set a cap on total ISA holdings of anything between £100,000 and £500,000. There’s not much you can do about that today. Except watch and wait.
If you have shares outside of an ISA, it may be worth taking them before Reeves stiffens up capital gains tax, as expected.
Consider making gifts. It would be a shock if Labour doesn’t take the knife to inheritance tax (IHT) breaks.
It may be worth boning up on how many tax-free gifts you can make today, and maxing them out in case Reeves tightens them.
She may also cap or scrap the little-known “gifts out of normal expenditure” IHT exemption, but there’s little you can do about that in advance.
Today, any gift is entirely free of IHT if you survive for another seven years after making it, known as potentially exempt transfers.
Reeves could extend that to 10 years. Either way, the earlier you make gifts, the more likely they are to escape HMRC‘s IHT net.
The chancellor is also said to be considering imposing inheritance tax on pensions, but again, we’ll just have to wait and see what she does.
Top up your tank. There’s a pretty strong chance that Labour will axe the temporary 5p fuel duty cut, then add another 5p for good measure. That probably won’t come into force until next April, but it may be worth filling up today, just in case.
Go to the pub. Almost every Budget, alcohol duty goes up. So it may be worth having a drink tonight. If only to settle your nerves. Smokers might want to buy a few packs of 20, too. They’re not going to get any cheaper, that’s for sure.
