Pension contributions are protected by the lifetime allowance, which allows savers to put away £1,073,100 into their pots before any tax is levied. Where this is exceeded, HMRC will issue a 55 percent tax charge and according to recent analysis from Aegon pensions director Steven Cameron, around 1.6 million people are now on course to pay this charge as a result of the Chancellor’s changes.
Express.co.uk readers react
This analysis drew the ire of Express.co.uk readers. Gooseiscooked commented: “This really is a vile attempt to punish those who are prudent. The common sense thing would be to stop or taper tax relief on pension contributions during working life and individuals can then make informed choices.”
Express.co.uk reader Dodgerrrr noted this appeared to be a problem with the wider Government: “This atrocious Chancellor and Government really have got it in for the elderly. They are trashing their lives every way they can financially. The Tories can well and truly kiss goodbye any future votes from pensioners.”
However, other readers were more understanding of the changes, or at least, noted the damage may be somewhat limited. Commenter Oyea noted: “It is only a nightmare for rich people.
“The majority will never be able to save a million pounds in their lifetime let alone dump it into a pension fund.”
Similar sentiment was shared by Express.co.uk reader Pythagoras who said: “It’s really more of a fix for one of those tax avoidances that people are always demanding to have fixed.
These difficulties may be made worse by the fact that inflation continues to rise. This week, the ONS published inflation figures which showed CPI has risen to 4.2 percent, more than double the Bank of England’s two percent target. Mr Cameron reflected on how pensioners specifically will be hit by this.
“Following a dip in September, driven in part by the recovery of restaurant prices following the ‘eat out to help out scheme’, CPI continued its upward path soaring to 4.2 percent in the 12 months to October, driven by rising energy prices and supply chain issues,” he said.
“With rising prices, consumers should consciously think about what products and services they are buying as the value of the money in their pocket becomes increasingly threatened. Any festive cheer of a boost to purchasing power looks unlikely in the lead up to the period where incomes are at their most stretched.
“Borrowers, and particularly those who may have emerged from the pandemic in debt, will feel the squeeze on their finances even more so, during what is already a challenging time of year for many households.
“Those on fixed incomes, such as many pensioners relying on the state pension, will also face a real challenge in meeting higher costs in the coming months, particularly with the Government scrapping the state pension triple lock next year. This will mean the state pension’s 3.1 percent increase in April will likely be far less than the rise in the cost of living at that time.
“The Bank of England has so far held off raising interest rates to ease the cost of living squeeze, but as the full post-pandemic picture becomes increasingly clear, the base rate may soon be lifted from its historic low.”
Many experts were relatively surprised that the Bank of England didn’t raise rates this month, but an increase could still arrive before the year is out.
In October, Michael Saunders, an external member of the Monetary Policy Committee, noted families should brace for “significantly earlier” interest rate increases as inflation issues continue to loom over the economy.
Additionally, when questioned by Ministers in September, Bank of England policymakers hinted rate hikes could be on their way.
Bank of England policymakers and members of the Monetary Policy Committee (MPC) were questioned by the Treasury Committee recently and Felicity Buchan, the Conservative MP for Kensington, brought up interest rates.
Ms Buchan said: “In our discussion on forward guidance and whether the threshold [for raising rates] had been met, you kindly gave us the information it was four to four…
“…Do you mind telling us where you stand [now]?”
Andrew Bailey, the Governor of the Bank of England, responded: “I think we can do that. So my view was that the guidance had been met.”
Dave Ramsden, the Deputy Governor for Markets and Banking at the Bank of England agreed.
“I gave a speech in July where I sort of flagged that I thought the guidance was close to being met,” he said.
“And by the time we got to the August round, my view also was that the guidance, which [as you know] was significant progress on eliminating spare capacity and sustainable return of inflation to target, had been met.
“But those were always necessary rather than sufficient conditions for tightening.”