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Pension warning: Rule changes to pay for coronavirus could lead to ‘real danger’

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Chancellor of the Exchequer Rishi Sunak updated the House of Commons on the Treasury’s plans for responding to the coronavirus pandemic this week, on the same day England entered its second national lockdown. Mr Sunak announced a further extension to the furlough scheme – which will now continue until the end of March 2021.

The Chancellor also confirmed an increase to the third Self-Employment Income Support Scheme grant – with this now being calculated at 80 percent of three months average monthly trading profits, capped at £7,500 in total.

This year has seen the government announce unprecedented public spending in response to the crisis, something which has left many wondering how these costs will be paid for.

The Government has already spent nearly £190billion on emergency coronavirus measures, figures released by HM Treasury show.

According to the Office for Budget Responsibility (OBR) back in July this year, public spending net borrowing in the current financial year (April 2020 to April 2021) could be anywhere from £263billion to £391billion.

Covering the cost of coronavirus in the UK is something which Julia Rosenbloom, tax partner, Smith & Williamson, has shared her thoughts on.

Speaking to Express.co.uk, she said: “As we begin preparing ourselves for The Budget next year, we are expecting to see some aspects of an IHT reform document published earlier this year come into effect.

“In particular, we anticipate the potential abolition of Potentially Exempt Transfers (PET), essentially the ability to make a gift of unlimited value that is exempt from Inheritance Tax (IHT) if you live for another seven years.

“Coupled with a probable increase in the rate of Capital Gains Tax, this would represent a significant restriction on people passing on their wealth, making it much more expensive to gift to their children or grandchildren.”

Another potential change which Ms Rosenbloom addressed was on the topic of pensions.

“We are also likely to see some changes to the current pension relief in The Budget next year.

“This could mean the limiting of tax relief or creating a tax relief hybrid, resulting in us all receiving the same relief of 30 percent, for example.”

So, what does the tax partner think this could mean for pension savers?

“Pensions are already very confusing, and making more changes will mean people understand it even less,” she said.

“We need a set of reliable and consistent pension rules to ensure people feel confident in saving for the future.

“The real danger is that these cuts will lead to a drop in the amount that people contribute to their pension pot.”

Mr Sunak had been expected to deliver an Autumn Budget this year, however with the coronavirus crisis ongoing, this was scrapped by the Treasury.

Lockdown rules currently vary across the UK.

England entered its second national lockdown on Thursday this week, which is expected to last until December 2.

Now, those in the country are being told they must stay at home, except for specific purposes, and to avoid meeting people they don’t live with – although there are exceptions for specific situations.

From hospitality to entertainment and leisure, certain businesses and venues have also been forced to close for this time.

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