Experts give 3 things to do to avoid budget hit ISAs, DWP and pensions | UK | News
In just over three weeks, Chancellor Rachel Reeves is set to deliver Labour’s first Autumn Budget since winning the general election in July. The annual statement, detailing the Government’s future spending plans, will take place on Wednesday, October 30.
While it’s currently uncertain what exactly the speech will reveal, Reeves previously warned that ‘difficult decisions‘ are crucial to ‘restore economic stability’ in the UK. This comes amid accusations that the Conservatives left an alarming £22 billion black hole of ‘unfunded pressures’ which the new Government has now inherited.
But what does that mean for you? The Express has now asked the experts to shine a light on the actions Brits can take before and after the Budget to potentially protect and bolster their finances.
1. Look out for ISA and banking changes
Lewis Broadie, Savings Expert at NatWest, stressed that making ‘hasty’ financial decisions is definitely a big no-no, but it’s still worth keeping an eye on ISA (Individual Savings Account) changes surrounding the Budget. “Recent research, conducted by NatWest, found that almost seven in ten (69%) savers expect to earn interest on their savings this year and could be eligible to pay tax on the interest they earn,” he said.
“With this in mind, it is definitely worth keeping an eye on any changes to the landscape and making sure you’re informed on the latest rules around contributing to your ISA.” In a nutshell, ISAs are savings accounts that offer offers tax-free interest payments.
In the UK, there are four types of ISA: cash ISAs, stocks and shares ISAs, innovative ISAs and lifetime ISAs. Every tax year, users can save up to £20,000 in one account or split the allowance across multiple accounts.
Until now, Fidelity International suggests that ISAs have usually been left untouched by chancellors ‘on the lookout for extra tax revenues’. But Elsa Littlewood, private wealth tax partner at BDO, has warned that ISA benefits certainly aren’t immune from the effects of the Budget.
“While savers may be hoping that the originally proposed additional £5,000 per year allowance for the UK ISA would be added to the current £20,000 annual ISA limit, there could be a sting in the tail,” she explained in September. “It’s not impossible that the chancellor could seek to impose a lifetime cap on ISA saving – perhaps set at around £500K. If this were to happen, we would hope that the limit would be indexed to rise in line with inflation.
“We could also see a reduction in the annual allowance available for cash ISAs, but an increase in the annual allowance for stocks and shares ISAs in an effort to support economic growth.”
In light of this, Bill Ryze, a Chartered Financial Consultant at Fiona.com, suggests that people start ‘utilising ISA allowances’ now. He told The Express: “It helps shield your investments from income tax and capital gains tax. If you have children, you can consider contributing to a Junior ISA to benefit from tax-free growth.”
2. Review your DWP allowances and other benefits
In August, Prime Minister Sir Keir Starmer warned of a ‘painful’ Autumn Budget while adding: “I’ll have to turn to the country and make big asks of you to accept short-term pain for long-term good.” As a result, some speculate that changes could be made to Department for Work and Pensions (DWP) benefits and other allowances.
Bill Ryze advised: “I suggest that you review your eligibility for benefits and allowances from the DWP, including Universal Credit, PIP (Personal Independence Payment), and other support measures.” On a separate note, he also added: “I advise you to consider inheritance tax planning using annual gift allowances to reduce your estate’s value.
“This could potentially lower your IHT liabilities. I also suggest updating your estate planning documents to reflect your current wishes and tax planning strategies.” The expert’s thoughts on benefits follow the Chancellor’s announcement that households in England and Wales would ‘no longer be entitled to the Winter Fuel Payment unless they receive Pension Credit or certain other means-tested benefits’.
Means-testing refers to issuing benefits based on your income and savings. Launched in 1997, the Winter Fuel Payment is an annual tax-free grant designed to give elderly people support in heating their homes during the colder months.
Documents from the House of Commons suggest that more than eight million households in Great Britain were expected to receive a Winter Fuel Payment for winter 2023/2024, totalling £2 billion.
But now, AgeUK estimates that 2.5 million pensioners who need the support will no longer receive it due to Labour’s recent actions. The charity explains: “We’re disappointed that the Government won the vote to continue these plans, but we won’t stop campaigning for every older person who needs support this winter.”
3. Maximise pension contributions
Last but not least, Bill Ryze suggests that Brits should thoroughly consider their current pension contributions. “You can review and maximize pension contributions by making additional contributions,” he explained.
“It helps reduce your taxable income. So, you will benefit from the current tax reliefs before the budget changes to the tax structure. At the same time, I advise people to be cautious and avoid early withdrawals from their pension because it can trigger the money purchase allowance and limit future contributions.”
From April 6, 2025 the state pension is set to rise by up to £460 a year in what’s been dubbed as the ‘triple lock‘ guarantee. Experts like Martin Lewis have labelled this initiative ‘good news’, though he pointed out two specific downsides.
On X, formerly Twitter, he explained: “[One] that starts next April. This winter most pensioners are facing (looking at energy bills alone) a typical £500 higher cost compared to last (energy bills are £100ish cheaper, but no £300 cost of living payment, no up to £300 winter fuel payment).
“[Two] the full state pension rise is for those who get the full state pension. There are up to 800,000 of the poorest pensioners who get less than the full state pension (£11,400 a year) who aren’t claiming pension credit and will miss out on the winter fuel payment even though they should get it.
“They are very hard to reach and will be under huge financial pressure. These are therefore people the govt said should be helped but due to difficulties in the system won’t be. These are the people I’m most worried about, some of whom may end up choosing between heating and eating.”
