- The Budget is highly likely to target taxes on wealth held by the individual.
- Private sector workers are less likely to be paying into defined benefit pensions and have lower median pension wealth than public sector households.
- Many will need to save and invest alongside it for a decent retirement. They need a more stable tax environment to invest for their futures.
- Private sector workers in large businesses have an average of £12,980 in less liquid assets, while public sector workers have £7,370 (HL Savings & Resilience Barometer).
Helen Morrissey, head of retirement analysis. Hargreaves Lansdown:
“We’re living through a dramatic shift of responsibilities. From the days of defined benefit schemes, where employers continue to guarantee an income for their staff in retirement, to a world of defined contribution, where they put what they have to into a pension, and hand over the responsibility to us. It means more people need to invest carefully for their future on top of their pension. They need a stable tax environment to invest for their futures.
This shift to individuals having to take more responsibility for their financial future is taking place incredibly unevenly, because while private sector defined benefit pensions are becoming a thing of the past, public sector defined benefit schemes plough on.
More defined benefit pensions is a major reason why the retirement resilience of public sector workers is so much higher. The HL Savings & Resilience Barometer in July showed they have a median pension pot worth £210,021, compared to private sector workers with large employers at £149,640. Private sector workers in smaller and medium-sized businesses are even less likely to have a defined benefit pension. 10% of schemes for employers of 10,000 or more people were open to new members compared to just 2% for those with 2-99 employees. That’s reflected in their pension pots, where they have an average of £68,131.
All of this has a major impact on people’s financial resilience. The Barometer shows only 34% of households working for a small to medium company are on track for a moderate retirement income. This compares to 55% of those working for large private companies and well behind the 62% of households who work for the public sector. It could get worse if we see the Chancellor hike employer national insurance for private sector businesses as this would push up employer costs and result in lower wage increases. It could also make employers less likely to increase their pension contributions beyond auto-enrolment minimums.”
Private sector need to invest more
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“Private sector workers need to save and invest, and in many cases do so alongside their pension. As a result, private sector workers in large businesses have an average of £12,980 in less liquid assets – like stocks and shares – compared to public sector workers with £7,370.
In fact, despite all this extra investment, private sector workers with large employers are less prepared for retirement than public sector workers – with 55% scoring ‘good’ or ‘great’ for retirement resilience, compared to 59% of public sector workers.
However, their efforts to prepare for the future put them more firmly in the frame for taxes on investments in the Budget than their public sector counterparts. If they have shares outside a stocks and shares ISA or pension they risk being hit with higher capital gains tax if this rises in the Budget. If Rachel Reeves tweaks inheritance tax after they pass away, their estate could face a bigger bill.
It means they need to work particularly hard to ensure they are saving and investing as tax-efficiently as possible, and making the most of their £20,000 ISA allowance each year. They also need to consider boosting pension investments. Plus, if they’re concerned about inheritance tax, they may want to make gifts to family later in life.
Of course, things aren’t all rosy for public sector workers either, because more of their reward is weighted towards their pension and less towards pay. The Barometer shows they have less money left at the end of the month – at an average of £304 each month, compared to those working for large businesses at £441. It’s why the ongoing row over pay has been felt so keenly in those households employed by the public sector. However, those working for smaller businesses have the worst of both worlds – with just £263 left at the end of the month
