Labour governments have always viewed the nation’s private pensions like a giant cash machine. Former Labour chancellor Gordon Brown’s first act after the 1997 election was to launch a brutal and vindictive pensions stealth tax raid that destroyed Britain’s private sector final salary pensions forever. It’s cost workers £200billion and counting, a windfall Brown squandered on heaven knows what, until there was no money left.
The UK’s gold-plated final salary schemes were once the envy of the world but today they barely exist in the private sector. Yet public sector pensions remain untouched. Labour would never dare take a chainsaw to those. Instead, Brown pulverised private provision and now Reeves is doing exactly the same. By doing so, she’ll make millions of Britons poorer in retirement, years down the line. Brown never said sorry. She won’t either.
Today, the vast majority of private sector employees and the self-employed invest in defined contribution pensions, which depend entirely on stock market performance. They’re less generous and far more volatile than taxpayer-backed public sector schemes. Yet these are exactly the pensions Reeves keeps targeting.
Defined contribution pensions did have one advantage. Unused pots could be passed onto loved ones free of inheritance tax. Reeves killed that in her first Budget. From April 2027, they’ll become subject to IHT.
Beneficiaries already pay income tax on inherited pensions, if the policyholder dies from age 75. Now they may get clobbered twice. In total, families could hand up up to 70% of inherited pension to HMRC. But that’s not enough for Reeves.
In her second Budget, she took aim at salary sacrifice schemes, which allow workers to pay part of their salary directly into their pension. That lowers their income tax and National Insurance bills, while boosting their retirement savings and reducing future dependence on the state.
From 2029, Reeves will slash the annual tax-free limit to just £2,000. She pretended this will only hit bankers with big bonuses. In practice, three million could lose out, including basic-rate taxpayers who use salary sacrifice to build modest retirement pots.
So that’s two brutal pension raids in two Budgets. Given that less than one in 10 are on track for a comfortable retirement, shouldn’t she be encouraging saving rather than destroying it?
There could be more tax raids to come. Before both Budgets, rumours swirled that Reeves planned to slash the cherished 25% tax-free lump sum on pension withdrawals.
Instead of calming fears with a few reassuring words, she stayed silent and let panic spread. Many rushed to pull money out of pensions early, only to regret it. There’s constant talk of Labour scrapping higher rates of tax relief on pension contributions too. It just doesn’t stop.
Throughout all this, public sector pensions are preserved in full even though they pay three times as much on average, and are unfunded. The unions won’t allow it. Yet Labour grabs private sector pensions again and again.
As we learned this week, Labour MPs only ever ask one thing. Who can we tax to pay more benefits? And the answer will always be the same: hard-working pensioners and savers. No wonder we’re blundering into a retirement crisis. My advice? Get a job in the public sector.