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Once, the UK’s private pension system was the envy of the world. That ended within days of New Labour’s 1997 election victory, when Brown launched a stealth raid on savings by scrapping dividend tax relief.
He destroyed gold-plated workplace “final salary” schemes, making them too costly to run, and leaving tens of millions worse off in retirement.
Brown raised around £5billion a year, which he blew on his pet projects, while sucking £250billion from our pensions.
Today, the Treasury earns almost nothing from that move, because only a handful of private sector final salary schemes survive.
The exception is the public sector, where almost everyone gets one. Reeves won’t touch those, even though they pose a staggering £2.7trillion liability, because public sector workers are a core Labour voting base.
Reeves, who stuck up a poster of Brown in her student digs, has learned a lot from her idol.
She launched a fresh pensions tax grab in last year’s Budget by dragging unused direct contributions pensions into the inheritance tax (IHT) net from April 2027.
She hopes to raise £1.5billion a year but this will destroy yet more public faith in pensions. We desperately need people to save more, but why bother when Labour treats pensions as their personal cash cow?
Reeves needs cash to plug her £50billion black hole, but this is about more than money. It’s a punishment for pensioners – derided as “boomers” on the left – for backing Brexit, questioning mass immigration and refusing to vote Labour.
The IHT raid is brutal. Beneficiaries won’t just face a potential 40% levy. They’ll also pay income tax at up to 45% on withdrawals.
In some cases, three-quarters of an inherited pension could be swallowed by the Treasury. It gets worse.
Today, nobody can touch their pensions until age 55, with one exception. The taxman.
If someone dies before 55, their pension can still be hit with IHT. It’s another slap in the face for pension savers. And this year’s Budget will deliver the sucker punch.
Speculation is rife, as Reeves scrambles to plug her fiscal gap while simultaneously destroying economic growth.
This time she may target pension tax relief, which costs the Treasury £78billion a year.
Savers get relief at 20%, 40% or 45% depending on earnings. Reeves is considering a flat 25% for all. Labour could dress that up as helping the lower paid, but it would destroy the whole principle of pensions tax relief.
Reeves may also take her axe to salary sacrifice, where employees save on National Insurance by taking some of their salary as pension contributions instead.
Some on the left are pushing her to raid the cherished 25% tax-free lump sum, say, by capping it at £100,000 or £75,000. Nothing is safe under Labour.
Except public sector pensions. They now pay roughly three times as much as private sector schemes. Brown didn’t lay a finger on them. Nor will Reeves.
