How pension pots will be affected by changes in the Budget

One area of the Budget set to affect thousands of people across East Anglia is changes to pensions.

State pensions are set to rise but Labour is planning an inheritance tax raid on the pension pots of the wealthy.

So, what changes are set to be made to people's precious pension pots across the region? 

Chancellor Rachel Reeves leaves Downing Street with her red box before the Budget last week (Image: Jordan Pettitt/PA Wire) STATE PENSIONS ON THE RISE

Both the basic and new state pension will increase by 4.1pc from April next year.

More than 12 million pensioners are set to benefit with the full, new, flat-rate state pension rising from £221.20 to £230.25 a week - an extra £470 each year.

This provision is for those who reached state pension age after April 2016. 

The full, old basic state pension, for those who reached state pension age before April 2016, will increase from £169.50 to £176.45 per week giving an extra £360 each year.  

This increase is in line with wages, which have risen by 4.1pc.

It will also apply to the standard minimum guarantee for pension credit.

Pension credit is a means-tested benefit for people who have reached the qualifying age for a state pension and are on a low income.

These people are entitled to pension credit in addition to the basic state pension.

Those who receive pension credit still receive winter fuel payments, which the government controversially took away from around 10 million pensioners earlier this year.

For single people, standard pension credit will top up their weekly income to £227.10 a week, a rise of £465 a year, from April 2025. 

For pensioner couples it will go up to £346.60, an increase of £710 a year.

People with caring responsibilities or a disability may be entitled to a higher guaranteed income.

Prime minister Sir Keir Starmer with chancellor Rachel Reeves (Image: Hollie Adams/PA Wire) TRIPLE LOCK

The UK state pension increases in April each year, a process which is based on a system known as the triple lock.

It was first introduced by the government in 2011 to guarantee that both the basic and new state pension rise by whichever is the highest out of three key figures; inflation, the average increase in wages, or by 2.5pc.

The inflation figure is based on consumer price inflation (CPI) for September of the previous year.

The average increase in wages figure is based on May to June of the previous year.

Scott Hansell of Lovewell Blake Financial Planning (Image: Lee Blanchflower) Scott Hansell, of Lovewell Blake Financial Planning, said: "The real good news for pensioners was that it was confirmed that the triple lock on state pensions would be maintained for the remainder of this parliament.

"That guaranteed a 4.1pc earnings-based increase in April next year."

INHERITANCE TAX RAID ON PENSIONS

However, pensions were included in a raft of changes to inheritance tax rules which Ms Reeves says will raise £2bn a year.

Inheritance tax is a tax on the estate - the property, money and possessions - of someone who has died.

Inheritance tax is not paid if the value of the estate is below a £325,000 threshold, which the chancellor has said will remain in place until 2030. 

It is also not paid if a person leaves everything above the £325,000 threshold to their spouse, civil partner, a charity or a community amateur sports club.

However, subject to consultation, from April 2027 inherited pension pots could be subject to inheritance tax.

Since 2015, pensions have been exempt from being considered part of a person's estate and free from inheritance tax. 

Currently fewer than one in 20 estates pay inheritance tax, meaning the tax is paid on about 27,800 estates each year.

The changes will bring more estates into the inheritance tax net.

Chancellor Rachel Reeves leaves Downing Street  (Image: Justin Tallis/PA Wire) Mr Hansell said: "There was one sweeping change in the Budget which is that most pension death benefits will be included in the estate for inheritance tax purposes from April 6, 2027. 

"The government has opened a consultation on the processes required to implement the changes.

"Tax on death benefits from pensions is not a new thing. It was only changes introduced in 2015 that allowed tax-free death benefits to be paid where death occurred before the age of 75.

"Pensions now really should be used for what they were designed for, which is retirement provision - not wealth transfers.

"The average person probably won’t have a problem because they will not have an inheritance tax problem.

"This is affecting people with large amounts of wealth and large pension pots."

Alistair McQueen, Aviva's head of savings and retirement, added: “The announcement that pensions will be included for inheritance tax purposes from 2027 will impact estate planning for wealthier individuals, which emphasises the importance of taking financial advice.

Alistair McQueen, Aviva's head of savings and retirement (Image: Aviva) "Pensions remain a tax-efficient way of saving for retirement. 

"We look forward to seeing further details outlining how this change will be implemented.”