Mamma Mia, Here We Go Again!
My mum rang me last week with two questions.
Why is the Labour government cutting my pension?
How can I avoid inheritance tax?
The short answer to the first was that they aren't.
The second made me laugh. "Mum, you won't pay inheritance tax. You're miles under the allowances."
I wish she did have enough to worry about it!
She felt daft for asking. She shouldn't have. She reads the same headlines as everyone else, and I've heard the same take on the triple lock across radio phone-ins, podcasts and social media.
Like most people, she thinks inheritance tax (IHT) is unfair, so when the Conservatives started talking about abolishing it, she wanted to know whether it was something she needed to worry about now because, "I'll be dead before they get back in!".
The headlines told her what was changing. They didn't tell her who it affects.
And all this before Wednesday's Budget, with the rumour mill already at full tilt.
Mamma Mia, here we go again.
Money, Money, Money
At the Labour Party conference last month, the Prime Minister announced plans to change the State Pension triple lock from April 2030. Cue headlines about pension cuts and another broken promise to pensioners.
What people are saying: Labour cuts pensioners' income.
What it should say: State Pension will continue rising by at least inflation, but won't always grow faster than wages.
For now, nothing changes. The triple lock stays for the rest of this Parliament, and State Pensions will go up again next April, by around 4% if earnings growth sets the pace as expected.
The change comes in April 2030. At the moment, the State Pension rises by whichever is highest of inflation, average earnings growth or 2.5%. From 2030, inflation and the 2.5% minimum remain, but the earnings link changes.
Rather than automatically matching wage growth whenever it exceeds inflation, pensions will receive an additional increase only when needed to maintain their value relative to earnings over time.
In other words, the State Pension will still keep pace with wages over the longer term, but the days of it continually becoming more generous relative to earnings are coming to an end.
It's not nothing. The Institute for Fiscal Studies has shown how the existing triple lock has steadily increased the State Pension relative to average earnings since 2011. The new approach removes that ratchet effect, meaning future pensions will be lower than they would have been under the old rules. But a pension guaranteed to keep pace with prices is not a cut by any definition I'd recognise.
And who feels it most? Not pensioners, who'll see a modest difference for whatever years they have left from 2030. It's those retiring in the 2030s and beyond, today's 50-somethings and their children, who'll live with it for decades.
The headline said pensioners. The people it really affects are the ones currently paying for them.
Gimme! Gimme! Gimme!
IHT is one of Britain's most unpopular taxes. A recent YouGov poll found that 56% of people want it abolished entirely, despite fewer than 5% of estates currently paying it.
So when Kemi Badenoch raised the prospect of abolition at the Conservative Party conference earlier this month, the headlines were inevitable.
What people are saying: Tories to scrap inheritance tax.
What it should say: Tories to exempt family homes. Abolition one day, maybe.
Badenoch's actual pledge was to take family homes out of IHT and let couples pass on an additional £1 million tax-free. Full abolition remains an ambition for when the country can afford it, and she was explicit that she wasn't announcing it.
It's still a clever pledge. A married couple can already pass on up to £1 million free of IHT if their home goes to their children, provided they qualify for the full allowances.
Most families never get close.
But while the politicians argue about abolishing it, the Treasury has been quietly helping itself. The basic allowance (the nil-rate band) has been frozen at £325,000 since 2009. Had it kept pace with inflation, it would be worth over £525,000 today.
And from April 2027, most unused pension pots will count as part of your estate for the first time. The Office for Budget Responsibility expects the share of estates paying inheritance tax to approach one in ten by 2030.
So my Mum is fine. Plenty of families who'd assumed a healthy pension would pass on free of inheritance tax may not be.
SOS: Save Our Savings
What people were saying: Tax-free cash to be cut.
What it should have said: Tax-free cash untouched. Again.
My Mum's misreading cost her a worried phone call. For plenty of others, it cost real money.
Ahead of both the 2024 and 2025 Budgets, the rumour was that pension tax-free cash would be cut, and people rushed to take it. Around £10 billion more than usual came out of pensions in 2024/25. FCA figures show tax-free cash withdrawals then hit £22 billion in 2025/26, some £14 billion above the levels seen before all the Budget speculation.
Neither Budget touched it. Recent research found that 61% of those who withdrew ahead of last year's Budget now regret it. Money that could have remained invested and growing free of tax inside a pension was withdrawn unnecessarily, potentially creating new tax liabilities and losing valuable tax advantages.
And here we go again. This year's rumour was that capital gains tax would be increased, potentially to align with income tax rates. I've heard of people scrambling to sell investments, property and even businesses before Wednesday's Budget.
Last week, reports emerged that the Chancellor had ruled out increasing CGT rates. A welcome clarification, but perhaps a little late for those who've already sold assets or brought forward transactions they might otherwise have left alone.
The rumours cost nothing.
Acting on them did.
Take A Chance On Me
There's nothing wrong with speculating about what a Chancellor might do. I've been known to have a go myself. But there's a difference between discussing what might happen and making financial decisions as though it already has.
And as we've seen, getting that wrong can be expensive.
On Wednesday, we'll finally find out what's actually in the Budget. I'll be going through the announcements, separating fact from fiction, and looking beyond the headlines at what really matters, who it affects and what, if anything, you need to do.
Because the important question isn't what the Chancellor says on Wednesday.
It's what it means for you on Thursday.
Dancing Queen
On Wednesday the headlines will land, and I suspect Mum will be on the phone again. The answers will be more of the same, "Don't worry!".
A while back, I took her to ABBA Voyage.
She couldn't tell you her nil-rate band from her residence nil-rate band, and she doesn't need to.
For one evening she wasn't worrying about pensions or tax.
She was a dancing queen.
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