Labour could potentially overturn “pension freedoms” in the Autumn Budget, according to speculation surrounding Labour Party Chancellor Rachel Reeves. This move is seen as one of many options available to Ms Reeves as she attempts to fill a £22 billion deficit.
In 2015, then-chancellor George Osborne introduced the “pension freedom” reforms, which expanded people’s choices for accessing their pension flexibly. Tom McPhail, from financial consultancy firm the Lang Cat, suggested that the party might raise the minimum age for accessing your pension from 55 to 60.
He also speculated that Labour might limit your ability to withdraw cash before first securing a minimum amount of guaranteed long-term income.
Writing earlier this year he said: “We know there’s a review of pensions coming, because Labour has said so.” He said it was anticipated that in the Autumn budget with the scrutiny of the Office for Budget Responsibility ‘we might hear more about an extension to pension reforms, in particular on pension taxation.’
He said: “Labour has also talked about delivering sustainable retirement incomes; they didn’t talk about adequacy of savings, or contribution rates (or collective defined contribution schemes). This says to me Labour is likely to do two things: Rachel Reeves and her team will revisit pension freedoms and reverse some additional guard-rails, perhaps a minimum secure income before you can access additional cash; and I think Labour will bump up the minimum age for accessing private savings. I wouldn’t be at all surprised to see them push the minimum age up to 60.”
“Before the election, Labour confirmed it wouldn’t be reintroducing the pensions lifetime allowance (LTA). They’ve also said they have ‘no plans’ to introduce other new or different tax charges on our pensions, but that doesn’t mean they won’t do it.
Taxation is already at the highest level for decades, as is borrowing. At the same time, public services are starved of cash: the government needs money and pension tax relief uses up lots of money.
“Reforming pension taxation is complicated, difficult and unpopular. If Labour come back at the end of the summer and announce it has reviewed the nation’s finances and discovered things are worse than expected (spoiler alert, this is extremely likely to happen), then pensions could be high on the list of targets for emergency tax rises.”
Mr McPhail said he believes the 2017 auto-enrolment changes will go through, with the minimum age being reduced to 18 and the lower earnings threshold being removed.
He added: “The legislation is already in place for this, all we need to make it happen is regulations around the timing. While it may prove unpopular with some, who will see it as a further slice off their disposable income, it will be welcomed by a savings industry which sees the default savings rates as still well short of where they need to be.”
Alice Haine, personal finance analyst at Evelyn Partners, stated: “The challenge for those who want to retire before they receive their state pension is whether they have adequate savings in place to fund a life without unearned income.”
She added: “Studies have found that many people are simply not saving enough to fund the level of lifestyle they want in retirement and the length of the retirement they want.”
Ms Haine emphasised that independent saving for retirement is crucial, with funds potentially coming from various sources such as property, ISA savings, an annuity, a private pension and a state pension, reports Birmingham Live.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, highlighted the necessity for sufficient planning for early retirement: “Those who want to retire before the state pension age need to make sure their retirement fund whatever the source is adequate to fill that gap between retiring and receiving the state pension,” she explained. “The last thing any retiree wants is to give up work, splurge all their retirement savings and then be forced back into work.”
“You can choose to work full time or phase into retirement through part-time work,” Morrissey continued. “It’s also not a one-way street. Once retired you can always return to work if you feel you need or want to.”
She also pointed out an often-overlooked option concerning the state pension: “If you find you don’t need your state pension while you are working then you can opt to stop receiving it for a period of time in return for receiving a higher amount later on. However, you can only do this once.”
