In a rather parochial perspective, I asked my friends to give a reaction to Rachel Reeve's budget, and got a nice summary back. Here's the low-down:
Autumn Budget Brings Relief for Pensioners but Sparks Debate on Inheritance Tax Changes
The UK’s autumn budget is setting the stage for significant changes aimed at helping pensioners maintain financial stability in an increasingly uncertain economy. With a 4.1% increase in both the basic and new State Pension, the budget is designed to lift the financial strain for millions of retirees. From April next year, this uplift translates into a rise in the full new State Pension from £221.20 to £230.25 per week, amounting to an additional £470 annually for recipients. Likewise, the full basic State Pension will see a bump, moving from £169.50 to £176.45 per week, providing an extra £360 per year. For many pensioners, these adjustments offer a tangible sense of financial security in an era where every pound counts.
I’ve always maintained that a sustainable pension system isn’t just a privilege; it’s a necessity. Given that the cost of living has been steadily climbing, this increase is not just welcome but essential. For over 12 million pensioners who depend on their State Pension to cover essential expenses, the adjustment could mean the difference between scraping by and achieving a basic level of comfort. A significant part of this budget, I’d argue, lies in its acknowledgement that pensions need periodic reassessment to stay relevant to real-world challenges. Yet, while the government deserves some credit for these adjustments, the actual impact will be closely watched to see if it aligns with the current cost-of-living pressures.
The budget also includes a 4.1% increase to the Pension Credit Standard Minimum Guarantee, effective from April 2025, which will deliver an annual boost of £465 for single pensioners and £710 for couples. While it’s positive news, I can’t help but wonder if it’s enough for the most vulnerable pensioners. The Pension Credit uplift attempts to bring additional support to those who often live below the poverty line and integrating its administration with Housing Benefit for new claimants from 2026 might make these benefits more accessible. This earlier-than-anticipated administrative shift, planned to take effect two years ahead of schedule, could reduce bureaucratic hurdles, allowing pensioners to receive the help they’re entitled to with fewer complications.
However, the budget’s adjustments aren’t limited to just pensions. Working-age benefits and the Additional State Pension will also receive a 1.7% boost in April 2025, aligned with inflation. This might sound minor compared to the increases in pension payments, yet it’s expected to provide around 5.7 million families on Universal Credit with an average annual gain of £150. Although I support any move to align benefits with inflation, this modest uplift could still fall short for many, considering the current inflation rates and rising household expenses. It’s this delicate balancing act that, I think, defines the budget’s approach. Whether this percentage is sufficient remains to be seen, as inflation continues to impact every aspect of daily life.
On a more contentious note, inheritance tax (IHT) is taking center stage. The budget has confirmed that IHT thresholds will stay at current levels until April 2030, with more than 90% of estates continuing to avoid the tax. However, there’s a twist. From April 2027, inherited pension pots will be subject to inheritance tax. This policy move, intended to curb what the government sees as an unintended distortion in pension use, aims to stop pensions from being used solely as wealth-transfer vehicles. By including inherited pensions in IHT, the government is steering pensions back toward their original purpose—funding retirement.
But there’s a divide in how people are responding to this change. I can understand why the government has taken this step; after all, pensions are meant to support us in retirement, not serve as a tax-free route for inheritance. And yet, there’s something about this move that doesn’t sit comfortably with me. For decades, individuals have planned their retirement savings with the understanding that pension pots could potentially bypass IHT, and now, this change could disrupt a carefully laid-out financial plan. It’s a reminder that tax planning strategies are, by nature, always subject to government recalibrations. In effect, what some might see as a reasonable policy shift could, for others, feel like a wrench thrown into their well-organized financial plans.
This is where I think the budget finds itself on shaky ground. While aimed at addressing inequalities in wealth distribution, the IHT inclusion of pensions could be perceived as a slight rollback on the previously understood purpose of these retirement funds. For many, pensions have become a legitimate part of estate planning, and this abrupt change may catch some retirees off guard. While the budget intends to reaffirm pensions as retirement resources, the policy might inadvertently fuel more creative tax-planning strategies to bypass IHT, as people try to protect assets for the next generation.
In sum, the autumn budget presents a mixture of positives and challenges. With the much-needed increases to pension payments and Pension Credit, the government is showing its commitment to easing pensioners’ financial burden. However, the inclusion of inherited pension pots under IHT from 2027 introduces a complex layer that could reshape how retirees plan for the future. Only time will reveal the full impact of these policies on the daily lives of pensioners, but one thing is certain: the government’s changes will spark debates, not only over the financial outcomes for pensioners but also over the evolving role of pensions in our society. As with many policy shifts, the devil will be in the details, and I’ll be keeping a close eye on how these changes unfold in practice.
What does the budget mean for Fintech UK?
Well, this was answered by Innovate Finance:
“This Budget was always going to be a challenging balancing act between stimulating growth and fixing public finances. We understand that difficult decisions have to be made and we welcome the government’s commitment towards increasing investment and stimulating job creation.
“We note however that the changes to CGT and to BADR, the knock on effect on EMI incentives which enable smaller firms to attract talent, and the increase in Employer National Insurance will increase costs and reduce incentives for entrepreneurs to start and grow businesses, impacting the competitiveness of the UK. We therefore now need to turbocharge the UK business environment to rebalance this.
“As a global leader and a driver of growth and productivity across the country, our UK FinTech sector - as well as creating a more inclusive and democratic financial services sector overall - has a vital role to play in growing the economy and thereby increasing tax revenues. To do this, we need greater certainty on the fiscal measures that matter to innovative firms, their investors and their ability to compete for talent against large corporations who can offer higher salaries. The 5-year Business Tax Roadmap published today provides some certainty on headline corporation tax rates and EIS and a welcome consultation on R&D tax credit pre approvals. We need similar commitments to stability, and in some areas improvement, on CGT, BADR and EMI.
“We also need a tech positive regulatory environment in the UK. The right regulation can stimulate growth and innovation without any public spending. We have been pleased at the progress of the Government in regulatory reform - now we need even faster progress, notably an ambitious Payment Vision, open banking and A2A payments, streamlining the FCA rulebook, proportionate capital requirements for challenger banks, and a commitment to make the UK the world leader in digital assets.”
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...