The UK chancellor has been urged to avoid altering tax policies related to savings, investments, and pensions in the upcoming budget scheduled for October 28, amid concerns that frequent changes are undermining saver confidence.
The Investment Association, a trade body representing the investment industry, has submitted recommendations warning that uncertainty around pension tax benefits is driving cautious financial behavior. A recent survey of 2,000 adults found that 34 percent feared pension tax advantages would be reduced in the upcoming budget, while 33 percent indicated they would be more likely to increase their retirement contributions if tax rules remained stable over time.
The association’s concerns come against the backdrop of several recent government measures affecting pension savings. Notably, from April 2029, a cap of £2,000 will be imposed on the amount employees can save into workplace pensions through salary sacrifice arrangements while still benefiting from national insurance savings. Additionally, starting next April, pensions will be included in inheritance tax calculations, potentially bringing more families into the tax net.
John Owen, chief executive of the Investment Association, emphasized the importance of policy stability for encouraging long-term pension saving and investment. He warned that uncertainty can erode confidence and prompt short-term decision-making that may deter future generations from adequately preparing for retirement, ultimately increasing reliance on public support.
Industry estimates from Pensions UK highlight the growing need for private retirement savings. According to their analysis, a single individual with no housing costs requires a post-tax income of at least £13,900 annually to maintain a minimum standard of living in retirement. This figure includes basic expenses such as groceries and the option of a modest UK holiday. The state pension, projected to rise to approximately £13,036 in April, falls short of this threshold, underscoring the necessity for supplementary private savings.
Pensions UK also defines a “moderate” retirement lifestyle, requiring a post-tax income of £32,700 annually, which covers modest discretionary spending including dinners out and a two-week foreign holiday. A “comfortable” retirement, permitting greater financial flexibility and luxuries, is estimated to require £45,400 after tax.
Beyond pension-related issues, the Investment Association is urging the government to refrain from increasing capital gains tax rates, to eliminate stamp duty on shares, and to maintain stable regulations regarding tax-free Individual Savings Accounts (ISAs). They note that the annual cash ISA allowance for those under 65 will fall from £20,000 to £12,000 from April, reducing the tax advantages previously available to savers.
Investor apprehension has already manifested in significant market activity, with £4.5 billion withdrawn from investments in the month prior to the last budget announcement. Of this amount, £1.4 billion came out of UK equities alone, reflecting anxieties over potential tax changes.
As Chancellor John Healey prepares to deliver his first budget, the Investment Association’s plea highlights the delicate balance between fiscal policy and maintaining public confidence in long-term financial planning.