James Jones-Tinsley: Budget panic needs cooling

The first Labour Budget for 15 years takes place on 30 October. In late September, at their first Party Conference since retaking power, both the Prime Minister, Sir Kier Starmer, and the Chancellor, Rachel Reeves, were keen to emphasise in their addresses to the Conference audience that there would be “no return to austerity.” With the well-publicised £22 billion ‘black hole’ that Ms Reeves claimed they had inherited from the previous government, it was also stated that the reduction in this deficit would be “shared fairly.” In other words, ensuring, “those with the broadest shoulders should bear the largest burden." In one respect, it’s hard to align this statement with the proposed means-testing of the winter fuel allowance, given that the bar for this test has arguably been set so low among British pensioners. But given June’s manifesto pledges that there will be no increases to Income Tax, National Insurance, VAT or Corporation Tax, the remaining ‘wriggle-room’ for the new Chancellor to raise tax, has been widely interpreted as potentially increasing Capital Gains Tax, reforming Inheritance Tax, and cutting pensions tax relief and tax-free cash. With those latter two possibilities in mind, while recalling that Mr Starmer declared in his ‘rose garden’ speech that the Budget would be “painful”, the ‘rumour mill’ has started its ever-accelerating grind between now and Budget Day, with right-leaning newspapers and TV channels in particular, doing their best to stoke up panic and worry among the electorate. Coincidentally, the Financial Conduct Authority (FCA) has just released their latest “retirement income market data”, covering the year from April 2023 to March 2024. The headlines are revealing. The total number of pension arrangements accessed for the first time in 2023/24 increased by 19.7% to 885,455 compared with 739,652 in 2022/23. The most common way for people to access their pensions for the first time was to take it all out as a cash lump sum, and in the first quarter of this year, 231,976 people of the total 450,851 accessing their pots took this route. Most worryingly of all, 70% of this group made this choice without first taking advice. My concern here is that, in the absence of full knowledge of what is going to be announced in the Budget, (other than the expectation-management that it’s not going to be pretty), this fear of the unknown could lead to even more people accessing their pension funds over the next weeks, for no reason other than worrying that if they don’t act now, they could be cursing themselves come Halloween. We’ve been here before. In my days as an adviser, rumours were building ahead of a Coalition government Budget, that the ability to take tax-free cash from a pension was going to be immediately removed. One of my clients, with a sizeable pension fund and Fixed Protection 2012, was adamant that they were going to withdraw their maximum tax-free cash sum, “…while they could.” A lengthy conversation ensued, during which I attempted to impress upon my client the Income Tax and Inheritance Tax implications that such an action could precipitate. After a few days of silence, the client contacted me again to say that he had decided not to withdraw his tax-free cash. When the Budget arrived, the possibility to withdraw tax-free cash going forwards remained unchanged. And this is where I believe that the power of advice can act as a force for good, and – for all the right reasons – seek to prevent individuals from taking unadvised actions - purely out of fear about what they’ve seen or read from unregulated entities - that could prove to be both wrong for them and impossible to reverse. However, if there was ever an optimal time for a political party to unleash a myriad of unwelcome and unpopular policy decisions upon the electorate, then it is at the start of their governmental tenure, while holding a significant parliamentary majority. That is where the Labour Party currently sits, and while most Budgets provide an opportunity for the Chancellor of the day to ‘blow their party’s trumpet’ and demonstrate how well they’re managing the economy, this time feels different. As a result, expect a Budget with significant implications for the future direction of pensions, and where the availability and receipt of advice going forwards, will prove invaluable. James Jones-Tinsley is a technical specialist at Barnett Waddingham on SSAS and SIPPs practice areas. He also presents to clients, advisers and other professionals on pension matters, liaising with the media on changes to pension legislation. James D Jones-Tinsley FPMI APFS, This email address is being protected from spambots. You need JavaScript enabled to view it.

James Jones-Tinsley: Budget panic needs cooling

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