(Alamy)
3 min read
Members of the British Armed Forces have warned Chancellor Rachel Reeves that changes to pensions in the Budget would damage the military’s “trust” in government and make it harder to keep hold of personnel.
Reeves is expected to increase taxes and cut public spending when she delivers the new Labour Government’s first Autumn Budget on 30 October. Ministers have repeatedly warned they must make “difficult decisions” to repair public finances, having already taken the unpopular step of restricting the winter fuel allowance.
Reeves is reportedly considering changing the amount of money people can withdraw from their pensions which is tax free as a way of raising money.
As thing stand, anyone with pension savings aged 55 or older can withdraw a quarter of their pension tax-free up to £268,275. However, according to reports the Treasury is looking lowering this cap to help raise money to spend on struggling public services.
Neil Marshall, the Chief Executive of Forces Pension Society (FPS), said lowering the cap risked affecting veterans and middle-ranking officers who did not earn huge amounts of money during their service, and make it harder for the Armed Forced to retain personnel as a result.
He told PoliticsHome it would undermine the ‘Armed Forces Covenant’, which is a promise to understand that those who serve – whether regular or reserve – should face no disadvantage compared to UK citizens.
“The Government is considering a measure that, if implemented, would be reneging on a commitment made to military people.
“A commitment that their overall remuneration package includes a tax-free lump sum to support their transition to civilian life when they leave the Armed Forces having completed the required length of service to qualify for a pension payment.
“This is wholly contrary to the spirit of the Armed Forces Covenant,” he said.
Marshall has written Darren Jones, the Chief Secretary to the Treasury, to warn against lowering the cap. A Treasury spokesperson told PoliticsHome the department does not comment on “speculation around tax changes outside of fiscal events”.
Reducing the current rate of tax-free withdrawals from £268,275 down to £100,000 would affect one in five retirees, according to analysis from the FPS.
Retention in the Armed Forces is a major challenge facing the Ministry of Defence (MoD).
Last year, more army personnel left the forces than the number of people recruited, according to a House of Commons Library report, while in only six of the last 23 years has the net flow of people joining the military been greater than those leaving it.
“The Armed Forces Covenant is a promise to those who serve or have served that they will not be disadvantaged as a result of their service,” said Marshall.
“If the Government cannot be trusted to honour its commitment to serving military people, then that bond of trust is broken, commitment will wane impacting retention, and this disincentive to serve will soon translate into a disincentive to join the Armed Forces.”
Labour’s election-winning manifesto said the party would “strengthen support for our Armed Forces communities by putting the Armed Forces Covenant fully into law”.
Prime Minister Keir Starmer has made a “cast-iron” promise to increase defence spending to 2.5 per cent, but has not yet provided details yet on when the Government will reach this target.
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