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'Stealth' tax alert for pensioners who face £15k burden by 2030

'Stealth' tax alert for pensioners who face £15k burden by 2030

Daily Mirror4 hours ago
Brits planning to retire may need additional retirement savings if the personal allowance tax freeze is extended
New data suggests that those planning to retire in 2030 and beyond could need to save around £15,000 if the personal allowance tax freeze is extended. This increased cost of maintaining their current lifestyle is attributed to fiscal drag, which is a consequence of rising state pensions, escalating living costs, and frozen personal allowances.
Pensions UK's latest Retirement Living Standards report reveals that a single pensioner currently needs an annual income of around £43,900 for a comfortable retirement. However, this figure is predicted to soar to over £58,800 in just five years' time to maintain the same standard of living.

It's important to note that this £14,960 increase is projected by 2030 if the freeze on personal allowance and income tax thresholds persists. Right now, the personal allowance allows most people to earn £12,570 each year before they're liable for income tax.

However, this has been frozen until 2028, and according to the Telegraph, Sir Keir Starmer hasn't ruled out the possibility of extending this freeze even further. During Prime Minister's Questions on Wednesday, the PM reassured that he plans to honour Labour's manifesto pledge not to raise taxes for working people.
However, he avoided answering questions about whether the halt on income tax thresholds would continue beyond 2028, reports the Express. Experts widely acknowledge this as a 'stealth' tax, which doesn't directly raise taxes but instead quietly pushes people into higher income tax brackets as wages and benefits climb with inflation over time.

This process, commonly referred to as fiscal drag, might eventually make the state pension subject to tax in years to come. Although the state pension isn't automatically tax-free, it presently sits below the personal allowance limit, meaning it avoids taxation altogether.
Given that the triple lock ensures a minimum yearly rise of 2.5% and the current full new state pension stands at £11,973, pensioners could find themselves paying tax solely on their state pension if the freeze continues over the coming years. Alan Barral, a financial planner at Quilter Cheviot, warned the Telegraph: "Frozen income tax thresholds may feel like a technical detail, but they have real consequences for retirees whose standard of living is being squeezed."
He added concerns about the Government's commitment, saying: "With the UK facing significant fiscal challenges, there's a real risk that Rachel Reeves may feel compelled to backtrack on Labour's pledge to unfreeze thresholds."
A government spokesman responded to the publication and said: "We are committed to helping our pensioners live their lives with dignity and respect, which is why in April the basic and new state pension increased by 4.1pc. Pensioners will receive a boost of up to £470 to their income in 2025-26. Our commitment to the triple lock means millions will see their pension rise by up to £1,900 this parliament."
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Reeves 'set to raise taxes' to fund Starmer benefits surrender: PM says he is 'pleased' after Labour revolt forces guarantee that NO-ONE will be stripped of handouts
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Britain needs a post-Covid economic reset
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More people are on benefits than ever before, which is forcing us to rely on a vicious circle of more immigration. We are spending more than we earn; this is a disaster in the making. The fiasco of Labour's Welfare Bill, currently limping through Parliament bereft of any spending cuts at all, illustrates many of the structural problems not just in our welfare system but in the British economy as a whole. The well intentioned, and easily exploited, flaws in sickness and disability benefits, combined with a huge expansion in the state, and economic downturn during the pandemic, to create terrible perverse incentives. 3,000 a day sign on to sickness benefits Some 400,000 people have left the workforce for health reasons since Covid. We now have 3,000 people a day signing on to out-of-work sickness benefits – up by 1,000 since Labour took office. Right now, 28 million people in Britain are working to pay the wages and benefits of 28 million others. 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Britain is slipping closer towards a devastating debt spiral
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The OBR can warn all it likes of impending disaster, but it has no teeth in highlighting the fiscal mire into which Britain is sinking. Beyond a few 'here today, gone tomorrow' headlines, its alerts are mostly ignored. If the political class can't or won't act voluntarily, the required adjustment will eventually be much more painfully forced on the nation by bond markets and/or the conditionality attached to an International Monetary Fund (IMF) bailout. The UK is on a slippery slope from which retreat may already have become impossible. That the events of 1976 – when the then-chancellor Denis Healey was forced by a sterling crisis to go 'cap in hand' to the IMF for an emergency loan – might in some way be repeated no longer seems entirely fanciful. Back then, debt was still less than 50pc of GDP; today it is nearly 100pc. As a proportion of sovereign debt, Britain has more in the way of index-linked bonds than any other advanced economy. Falling inflation should therefore bring some relief to debt servicing costs. Sadly, it is likely to be temporary. Debt issuance in the UK faces a particular problem, which most other advanced economies don't have, in that one of the major sources of domestic demand for gilts – final salary pension schemes – is drying up. Britain's big, defined benefit pension funds have in the past been substantial buyers of gilts for liability matching purposes, but with the vast bulk of them now closed and essentially in run-off, they are being transformed from net buyers to net sellers. Projections by the OBR suggest that total pension fund holdings of gilts as a share of GDP are likely to fall by around two thirds over the next 45 years from 29.5pc to just 10.9pc. Outside the public sector, very few employees these days have access to defined benefit pension arrangements. Instead, we are shunted into 'defined contribution' pensions where the investment risk is borne by the individual. These funds have far less appetite for gilts, but tend instead to be invested more heavily in equities and other higher risk assets. Pensions freedom, relieving retirees of the one-time obligation to buy an annuity with their pension pots, has further skewed the field away from gilt investment towards equities. On balance, this ought in the long run be better for the economy. Poor levels of business and infrastructure investment in the UK are strongly linked to the in-built bias among pension funds in favour of gilts over companies and other productive assets. But what may eventually prove good for the economy is not at all good for the gilts market. The OBR calculates that the decline in pension sector demand for gilts could push up interest rates on government debt by around 0.8 percentage points, assuming the stock of debt remains close to 100pc of GDP. By making the Government more reliant on price-elastic buyers such as overseas investors, the UK also becomes far more vulnerable both to global trends in interest rates and any sudden loss of confidence in the country's ability to manage the public finances in a sustainable way. The other big recent source of demand in the gilts market was the Bank of England through its 'quantitative easing' asset-purchase programmes. But with 'quantitative tightening' this has now gone strongly into reverse. All of a sudden, the UK Debt Management Office finds itself up the proverbial without a paddle. It's true that other countries – notably Japan, the US, Greece, Italy and France – would on the face of it seem even more fiscally stretched than the UK. But Japan has a massive domestic savings surplus to sustain its ever higher levels of debt issuance, while the three European miscreants are in effect underwritten through monetary union by the German credit card. As for the US …well, it remains a major draw for international capital, despite its quite plainly unsustainable fiscal profile. There are no such safety nets to support the UK. Bullies tend to pick on the weakest, and the international bond market is perhaps the biggest bully of the lot. For choice, Labour would raise taxes to fill the gap, but with public services still on the slide, it's a hard sell to voters who not unreasonably expect better from their taxpayer pounds. A reckoning is coming; it's only a question of when.

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