Fears rise that pension tax perks could end to repay Covid-19 bill

The chancellor has promised some taxes won’t rise, but National Insurance breaks are still in the firing line.

Chancellor Rishi Sunak could be set for a tax raid on retirees or an end to the state pension triple lock to avoid breaking a Conservative Party pledge, experts warn.

The Conservatives vowed during the last general election to not raise rates of income tax, National Insurance or value added tax, the so-called tax triple lock.

Sunak is reported to want to keep that pledge during his impending Budget next month.

But that could mean other taxes are hiked to pay off the UK’s deficit and recoup the cost of the government financial support provided during the pandemic.

Steven Cameron, pensions director at Aegon, warns that while some taxes may not be raised, the chancellor is free to scrap the National Insurance exemption for retirees or even remove higher-rate tax relief on contributions for pension savers.

He also warns that a commitment to the tax triple lock might make it harder to also provide the state pension triple lock. This currently increases state pensions at the highest of inflation, earnings growth or 2.5% a year.

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Cameron says: “Those at risk of losing current incentives might seek advice on acting sooner rather than later. 

“It may be that more radical or complex changes take some time to implement because of many complexities, but even if not announced as early as the March Budget, they could feature in a second Budget later in the year.”

Sunak has already commissioned a review into capital gains tax (CGT), which proposed reducing the annual allowance and could also mean the rate is raised.

Cameron adds: “This could impact those investing outside tax-favoured ISA and pensions wrappers as well as second homeowners.

“It could also adversely affect business owners who sell their businesses although the chancellor could avoid discouraging entrepreneurship through more generous business asset disposal relief.”

Economists have said the Budget on 3 March will be a “critical event”.

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Howard Archer, chief economic adviser for the EY Item Club, says: “While the economy has now become less volatile, there is still significant uncertainty over the policy outlook.

“The government has done a good job of generating interest in its plans for a green recovery, levelling up the country and creating a global Britain.

“Now it needs to provide businesses and investors with the details they need to plan and to allocate resources.”