Budget 2024: Why We Need to Step Up for Pensions and Inheritance Tax Reform
The 2024 Budget has stirred considerable discussion, especially regarding its impact on businesses and individuals. Regardless of our political views, budgets can bring financial strain to some. This year’s budget is no exception, with serious implications for pensions, retirement planning, and inheritance tax (IHT). As property prices and financial challenges grow, it’s time for the financial industry to take a stand to protect working families and their hard-earned assets.
Inheritance Tax and Property Values
Currently, inheritance tax affects only a tiny proportion of UK estates. The average property value in the UK stands at approximately £282,000, but in specific regions and cities, property prices are significantly higher. As these values continue to rise, many more estates may become liable for IHT, leading to a natural increase in tax revenue from inheritance.
Without adjustments to the IHT threshold, more families may face unexpected tax burdens on inherited properties.
Retirement Funding: New Challenges for Working Families
For previous generations, retirement was often more straightforward. Many workers relied on defined benefit schemes, providing financial security for life. Today, only government schemes and a handful of large corporations offer this benefit, leaving most people responsible for building their retirement savings through defined contribution pensions.
Tax incentives for pension contributions and investment growth exist, but achieving a comfortable retirement remains challenging. According to the Retirement Living Standards, couples need around £59,000 yearly for a comfortable lifestyle, but the state pension only provides approximately £23,000. This leaves a gap of around £36,000 (or roughly £68,000 gross) per year.
A moderate retirement fund would require around £625,000 to bridge this gap, while a comfortable retirement might need as much as £1.125 million. Most working families lack access to high-value pensions and rely on other retirement savings to secure their future, which would form part of the estate.
Protecting Retirement Funds for Working Families
For many, a pension fund is not a luxury or a tax-avoidance strategy—it’s necessary for a dignified retirement. This budget, however, has added unexpected financial pressures and threatens the retirement aspirations of countless working people, who are not only hoping to deliver an income for themselves but perhaps some foundation for their dependents.
A Fairer Solution for Inheritance Tax and Pension Funds
With rising property values pushing more estates into IHT territory, the government could consider implementing a lifetime IHT allowance for pension funds up to £1 million. This would allow individuals actively drawing benefits to retain more funds outside IHT, with only excess amounts subject to IHT. Any uncrystallised funds could be taxed after age 55, encouraging fairer retirement planning for working families.
A £1 million lifetime allowance for death benefits could provide relief without signalling excessive wealth—this amount is crucial for many simply aiming to support themselves in retirement.
How the Financial Industry Can Advocate for Change
The government has published consultation guidelines and seeks financial sector input. Now is the time for the industry to raise awareness, lobby, and advocate for working families. By supporting fairer inheritance tax thresholds and flexible retirement options, we can protect the financial security of countless individuals.
As the financial landscape evolves, standing up for working families and their right to a secure retirement should be a top priority. The industry has the power to make a difference—let’s use it to ensure a fair future for all.
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