Will budget pension changes be immediate?

[Curtainsformeplease]

Hello, there is speculation about potential pension changes in the October budget, one of which is reducing/ending the 25% tax free lump sum allowance.

If that does happen, is it likely to be an immediate change or would over-55’s have a chance to withdraw the 25% tax free lump sum before it came into effect?

No one on here will 100% know, but it's very possible it could be immediate.

There would need to be a change in legislation and protections put in place for existing contracts. So no, it can’t be immediate.

So if fuel or alcohol duty is changed at the budget it's not more or less immediate relating to product leaving bond after time xx:xx today?

Normally changes in tax on income or capital are announced in advance for the next tax year but they can be sooner; like the day after the budget.

Think about how fast VAT in school fees was announced and put into practice. On the day it was announced it was also announced that lump sum payments would not be accepted despite the rule not coming in until January.

Quite simply nobody knows, they can do anything in reality. They could put a sudden halt on all TFLS withdrawals from 31st October if they want.

If they want to limit the 25% to a certain amount I can’t see them wanting to give people time to do it before it comes into force.

But I don’t personally think they’ll touch the current cap - it’s more likely that they will just let it erode in value slowly over time (fiscal drag).

It will seriously mess up peoples retirement plans which will have been relying in the tax free lump sums.
It will be unpopular and cause uproar but I guess not on the scale of that caused by the means testing of the WFA.

What you could do is ask your pensions provider(s) for quotations. We're doing this - annuities with the tax free lump sums on ours as we are very close to retiring. We'll have our quotations in before the end of the month. I think we'll just go for it regardless, but I can't imagine them not allowing anyone over the age of eg 55 or 60 ( &hopefully not 65) that's had the full annuity quotation with the medical info submitted but then not allowing them to proceed, surely? I can see them restricting it to not permit younger people to have the same tax free allowance.

One of the big problems is that people are withdrawing too much money and spending it early in retirement. This will lead to serious hardship later on and restricting the amount that can be withdrawn would protect pensioners from poverty later in life.

I don’t want to spend it, I just want to make sure I don’t have to pay tax on it.😀

For us, it’s our way to pay off the remaining mortgage. If it is suddenly much less/taxed, we’d have a problem.

I hear you op. I retire in 6 years time and had that ear marked to ensure all my debts (mortgage etc) were clear with an amount set aside. It'll potentially mean I have to work longer if it's reduced.

My dh is older than me and has put his request in last week to pull his 25% out now.

I wasn't meaning you specifically,😁. I was just commenting on the general need for reform to the current system.😊

I think there’s sometimes this idea that you might as well live it up and enjoy yourself. I have a distant relative who retired early and lived the high life after her husband died, cruises, holidays, fancy kitchen, nice car. It was all paid for by spending his pension money and a lifetime mortgage on the house . Now at stage of needing care and has a really low income. House is too big really but can’t downsize as doesn’t have much equity. She is entitled to council carers but it’s 15 minutes 4 times a day which is barely any time at all really in terms of care she needs.

Family are quite arms length as she had no interest in them for years. I think she’d like to go in a home tbh but the council won’t pay for it.

You are undoubtedly right, many do have the attitude of spend it now , as I don't know how long I have got. The trouble is, large numbers of people will live longer than they expected and find themselves in poverty at the most vulnerable stage of life. After all, 50% of people live longer than the average age

I think because someone else/ taxes will pay for care for those who don’t have anything some people think they might as well spend it first. I’m not sure if people also realise quite how high the bar is for the council to be willing to pay for a carehome place. It’s very much last resort as it’s so very expensive.

I haven't seen anything on ENDING the tax free lump sum, which would be WILDLY unpopular. There has been speculation on reducing it from £236k or whatever it is to £100k.

I think it's UNLIKELY it would happen absolutely overnight - what happens if (for example) your normal retirement age was the day after the budget, and you'd already Exchanged Contracts on a house purchase based on the lump sum you were expecting to get? At the very least those who had already asked to retire would surely have to have those requests honoured?

But this is an area to be very careful both ways - they COULD make an overnight change...but then equally they may make no change at all, and if you have made a hasty irreversible decision to take your benefits you could regret that for many years.

Not only do 50% of people live longer than average by definition but most people underestimate what the average life expectancy is. For example life expectancy at birth in the UK is probably 80 but life expectancy at age 65 is more like 83-84, because the older you get (and don't die!) the older your life expectancy becomes.

If, and it's a huge if, they were stupid enough to announce this, they would never announce a date in the future. Everybody would be drawing that out the next day. They'd be sick they had let people escape.

It's obvious the Labour Party see pensioners as an easy target. I'm sure they've thought of many ways to screw people in retirement out of their money.

All while they get money just for turning up for work, subsidised meals and drinks (which 'normal' people would get taxed on), heating allowances and know every little trick to line their own pockets. they must know they will struggle to get another term.

I'll admit I voted for them, thinking they would be looking after the average working person (I retired in July after being made redundant), more than the Tories were. Different name, same backstabbing. Big mistake, they are just sucking up to the unions(again) while looking for the money to pay for it all, from the wrong people.

I am a pensioner now, but I personally I am not bothered about the removal of the WFA. As long as the people who need help, get it. I am annoyed they might remove the single person council reduction, though. It's like they've looked and thought "let's just crap all over pensioners, easy target. Makes us look like we are worried about the economy". Lying about the so-called £22bn surprise, when they had six months to review the figures. Should have known, politician = liar.

I bet they wouldn't lie straight in bed.

Maybe, Starmer and co spent their childhood puling the wings off of insects?

I hope not, would be political suicide.

That hasn’t stopped them changing the WFA though

I am annoyed they might remove the single person council reduction, though.

This was only ever a rumour, and the treasury have now confirmed it is not in the October budget.

Changing the WFA was done very badly - had they done it at the budget as part of a whole package of pluses and minuses that would have gone down much better that what felt like an arbitrary minus all on its own.

i.e. it wasn't a political suicide moment at all, it was just a foot-in-the-bucket moment: it's also worth noting that by the time of the next election there will be another 4 and a bit years' worth of things to be judged on so very few of those people saying "that's it - they've lost my vote!" really will vote in 2029 just based on this issue

I think it is extremely unlikely that they would make this in a way that affected money already held in a pension.

They might limit the tax-free element of money paid into a pension from now on, but altering it for money previously paid in would fly in the face of how any similar changes have been made for years.

I think this would be in an entirely different league. Telling people they won't get a couple of hundred pounds in the future is one thing. Telling them that they might have to pay tends of thousands of pounds in extra tax, on money they had planned for year on getting, would be completely unprecedented

DH is retiring next week, it was more to do with severance offered plus changes to USS pension scheme. We do however have plans for the 25% tax free lump sum , many do.

I think they are likely to lower the amount of AVC you can pay in. That saves a lot of tax if you can chuck in an extra grand or two a month in extra contributions. so I could see them lowering the amounts.