Chancellor Rishi Sunak will announce his Autumn Budget this afternoon (27 October), setting out his tax and spending plans for the winter.
Mr Sunak is expected to strike an upbeat tone as he ushers in a “new economy” as the nation recovers from the hardship of the Covid-19 pandemic.
Some measures have already been confirmed ahead of the announcement, including an end to the 12-month public sector pay freeze and a rise in the National Living Wage, which will increase from £8.91 per hour to £9.50 from 1 April next year.
The Chancellor is also expected to announce changes to the pensions savings system, with a possible cut to tax relief on the cards.
What is pension tax relief?
You can get tax relief on private pension contributions worth up to 100% of your annual earnings.
This will be given automatically if your employer takes workplace pension contributions out of your pay before deducting income tax, or if your rate of income tax is 20%. In the case of the latter, your pension provider will claim it as tax relief and add it to your pension pot.
If your rate of income tax in Scotland is 19%, your pension provider will claim tax relief for you at a rate of 20% and you do not need to pay the difference.
How much tax relief you get will depend on how much income tax you pay, meaning those who are higher earners will be better off.
For example, if you only pay basic income tax, you will get 20% tax relief from the government, whereas those who pay an additional rate would get 40%.
Pension tax relief cost the government £41.3bn in the 2019/20 tax year, according to recent statistics from HMRC, so it is expected that cuts could be on the cards in the Budget.
What is the triple lock?
The triple lock guarantees that state pension payouts increase in line with whichever of the following three things is highest:
- average wage increase
- or 2.5%
However, during the Covid-19 pandemic many people were earning less than usual because they were placed on furlough.
As furlough has now come to an end and workers have returned to full pay, this has been recorded as a huge rise in average earnings.
As a result, the government has decided to scrap the average wage element of the triple lock.
Work and Pensions Secretary Therese Coffey has said the triple lock will remain suspended for 2022 to 2023, and the state pension will instead be determined by either the inflation rate or 2.5%.
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