Chancellor Rachel Reeves may have urged everyone to do their bit to help balance the nation’s finances in her Autumn Budget but the actual impact appears to vary across generations.
Reeves unveiled a range of changes in her latest fiscal update last month, including a cap on pension salary sacrifice contributions and a freeze on income tax thresholds.
Savers will also be hit by a cut to the cash ISA allowance from April 2027, while landlords are facing higher taxes on property income.
Try 6 free issues of MoneyWeek today
Get unparalleled financial insight, analysis and expert opinion you can profit from.
Start your trial
Sign up for MoneyWeek’s free twice-daily newsletter.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Research by Standard Life has found that public sentiment towards the Budget is broadly negative, with overall approval standing at -8% based on a net percentage balance.
Latest Videos FromMoneyWeek
But age is the defining fault line.
Approval plunges to net –37% among those age 55-plus, according to Standard Life, driven by dissatisfaction with tax rises and changes to ISAs and pensions.
Meanwhile, sentiment actually flips among 18 to 34-year odds to a more positive net +37%, which the financial provider suggests means younger adults see more upside in the chancellor’s statement.
For example, the national living wage increase sees net support of +58% and removing the child benefit cap stands at net +33%.
Mike Ambery, retirement savings director at Standard Life, said: “The Budget has landed very differently depending on where people are in life.
“Younger adults see room for optimism - many support steps like the rise in the national living wage, which perhaps gives them a sense that the system is beginning to move in their favour. However, it seems older generations feel as though the rug is being pulled under them at the worst possible moment.”
Here is how the Budget is set to hit different generations.
Salary sacrifice shake-up
The government is planning to cap how much workers can put into a pension using salary sacrifice at £2,000 by 2029, potential boosting the Treasury’s National Insurance intake.
This has raised concerns that the changes may make pension saving too complicated.
Standard Life’s research found almost one in five of all consumers are “very concerned” about the changes - jumping to a third (33%) among those earning £70,000
Ambery added: “Salary sacrifice has been one of the most reliable tools for helping people make every pound of their savings go further. Changing it now risks making saving feel harder at a time when most people are already under-saving for retirement.”
Jason Hollands, managing director at Evelyn Partners, suggests the biggest impact of the salary sacrifice changes will be on middle-aged higher earning professionals who are in jobs where bonuses are part of their remuneration, as much salary sacrifice comes through individuals waiving bonuses in lieu of a pension contribution to reduce a tax bill.
He said: “This is especially useful for people seeking to keep their report earnings below the £100k threshold at which the personal allowance is tapered away.”
Tax hikes
The Budget confirmed that income tax thresholds will remain frozen until 2031, extending the current freeze by three years, creating fiscal drag.
Standard Life’s research reveals a significant generational divide on this announcement. Support for the move for 18–34-year-olds stands at net +36%, while net support for the over-55 age group falls to -29%.
Older generations may be feeling more negative as other reforms such as the mansion tax and higher income tax on property income for landlords is more likely to hit them than younger people.
However, Hollands highlights that those solely on the state pension as their source of income will continue to benefit from rises under the ‘triple lock’ formula and won’t have to pay income tax even if the state pension exceeds the personal allowance.
It is not all positive for younger generations though.
Hollands added: “On the surface you might think the rise in the minimum wage must be a good thing for people just starting out in work and at the lower end of the income spectrum. However, these measures are likely to see reduced hiring by businesses struggling with increased costs, making it more difficult for younger people get into work in the first place.
“There is already evidence that many young people are leaving the UK in increasing numbers to destinations like Dubai where there are better job opportunities and a much more favourable tax environment.”
Plus, young and middle-aged people are also going to bear the brunt of measures announced in the 2024 Budget, but yet to come into effect, such as adding pensions to inheritance tax from 2027, which will affect how much can be passed on to other generations.
The biggest change that treats people differently dependant on their age is the cut to the cash ISA allowance from £20,000 to £12,000 from April 2027.
This is one area where over-65s may actually benefit as they are exempt from the limits, while younger generations will be hit if they wanted to maximise cash ISA savings for goals such as saving for a mortgage deposit.
Hollands added that over-65s will also benefit from still being able to hold “cash-like” assets in a stocks and shares ISA, which will be restricted for everyone else from April 2028.
He said: “That seems incredibly unfair, that the cohort who can still put £20,000 in a cash ISA, will also be able to hold cash or money market funds in stocks and shares ISAs without facing a penalty charge on interest or a potential exclusion on access to money market funds that might be coming for everyone else.”
