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The Great Pension Heist: When Your Hard-Earned Savings Become the Government’s Next Payday

Writer's picture: Steve ConleySteve Conley

When it comes to pensions, Labour seems to have a knack for reaching into our pockets—and the latest budget is no exception. For those sitting on a Lifetime Allowance-sized pension pot, this latest raid is thousands of times worse than the axing of winter fuel allowances. Let's take a stroll down memory lane, shall we?


Blair’s Divorce Drama: Pensions as Fair Game

Back in 1999, under Tony Blair, pensions faced their first taste of reform with the Welfare Reform and Pensions Act. Suddenly, pensions were included in the matrimonial pot during divorces, giving ex-spouses a slice of your retirement savings pie. If you were hoping to keep that pot intact, think again—this change reduced pension savings for many, leaving retirees wondering why they’d bothered saving in the first place (me included, twice divorced since!). The message? Your pension isn’t safe… even in love and war.


Brown’s ACT Abolition: The £5 Billion Tax Grab

Then, we had Gordon Brown, who seemed to think pensions were ripe for the picking. In 1997, he abolished advance corporation tax (ACT) credits, which until then had been a healthy revenue stream for defined benefit (DB) schemes. The result? A cool £5 billion taken from pension funds every year, straight into government coffers. Unsurprisingly, this spelled doom for many private DB schemes, as employers simply couldn’t keep them afloat. Thanks to Brown’s manoeuvre, private pensions were left gasping for air, and many have since gone extinct.


Reeves’s Retirement Robbery: The Latest Pension Heist

Now, fast forward to today. Enter Rachel Reeves, who’s taken up the Labour baton in what’s shaping up to be a historic tax raid on private pensions. This time, Reeves has set her sights on defined contribution (DC) pensions, announcing that these could now be counted towards inheritance tax. For years, Baby Boomers have been using tax sequencing to maximise their drawdowns—spending taxed savings first, then tax-exempt ISAs, and saving their tax-deferred pensions for last. Why? Because those pensions were supposed to be out of reach of inheritance tax. Well, that rule’s now been thrown out the window.


Under the new proposal, Reeves has essentially made it impossible to pass on a pension without facing a double tax hit. In some cases, this means a combined inheritance and income tax of up to 67%. For those who worked their entire lives to leave something for their kids, this is one mighty kick in the teeth. But fear not—public sector pensions, including those for MPs, remain untouched. Must be nice, eh?


The Public vs Private Pension Divide

While private savers face the new double tax whammy, public sector pensions are still safely backed by taxpayers’ money. The government’s pension pot is sitting on liabilities topping £4.9 trillion, nearly twice the national debt, but there’s no mention of a “tax raid” on these pensions. Instead, private pensions are left to foot the bill. It’s a “tax fairness” plan that, ironically, seems entirely unfair.


What’s Left for Savers?

Now, with pensions under fire, financial planning has never been more complex. Do you spend down your pension faster to avoid inheritance tax? Do you start funnelling savings into ISAs instead? Should you be investing in a retirement yacht and taking to the high seas? These are the questions we’re left with.


And that’s where the Academy of Life Planning steps in. While the rules may be changing, one thing’s for certain: planning is more critical than ever. We help you craft a strategy that’s flexible enough to withstand these shifting sands, making the most of your financial assets and human capital. It’s about creating a future where you’re in control, not the taxman.


So, if you’re wondering what’s left of your retirement plan after Labour’s legacy of pension raids, know that it’s still possible to build a strategy that works for you. The road might be rocky, but with the right guidance, there’s still a way forward.


Interested in protecting what’s yours? At the Academy, we help you navigate the chaos and keep your legacy intact.

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