Frozen thresholds, rising pension tax exposure, and a landlord tax increase are reshaping the later-life advice conversation
Chancellor John Healey’s first Budget may not have delivered many headline shocks, but its implications run deeper than the top lines suggest for mortgage advisers working in the later-life space.
Clare Moffat (pictured top), pension and tax expert at Royal London, said the combination of frozen tax thresholds, a rising State Pension, and rental income tax changes for landlords creates a landscape where client conversations need to extend well beyond the mortgage itself.
"Frozen thresholds are a concern for many people," Moffat told Mortgage Introducer. "You could get a pay rise and end up worse off."
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The retirement housing gap
One of the less-discussed consequences of the current housing market is the growing number of people who expect to carry a mortgage – or pay rent – well into retirement. Moffat pointed to research indicating that many younger people are already factoring this in as a likely reality. The problem, she said, is that the benchmarks the industry uses to define adequate retirement income do not reflect it.
"The Pensions UK figures, which look at what you would need for a minimum, moderate, and comfortable level in retirement, are based on not having any rent or mortgage payments in retirement," Moffat said. "So you're going to need more money if you're renting or have a mortgage into retirement."
She noted that the average age of first-time ownership is currently around 33 to 34, and that home ownership materially improves financial resilience in later life, both by removing housing costs from retirement income and by providing access to equity release.
That context gives the Budget's first-time buyer measures – including Your First Home, a government equity loan scheme providing a 20% stake in new-build properties to eligible buyers – a relevance beyond housing policy, as explored in coverage of what the Budget means for the mortgage industry. Moffat flagged, however, that detail on how the scheme will work is still outstanding, and advisers should await draft legislation before advising clients on it specifically.
She also raised a point that sits squarely in the broker's remit. Approximately only 6% of people hold an income protection policy, often because the conversation never happened.
"That's often because people don't know about it until they talk to a mortgage introducer," Moffat said. "If you’re saving up for a deposit, how do you manage that if your savings are basically having to pay for you when you’re off sick?"
Should clients in their 50s pay off the mortgage or save into a pension?
Clients approaching retirement who still carry a mortgage face a question advisers are increasingly being asked: is it better to overpay the mortgage or prioritise pension contributions?
Moffat's answer is nuanced. Pension contributions often make more financial sense, particularly for higher-rate taxpayers, given the tax relief they attract and their potential to reduce taxable income below critical thresholds. She was candid, however, that the numbers alone rarely settle the matter.
"There is something about people wanting to reduce that mortgage," she said. "That worry about interest rates going up, that concern that my fixed rate period ends. Will I be able to afford the extra payments? It's quite a personal decision often."
Advisers working with clients approaching the £100,000 personal allowance trap – where the personal allowance is withdrawn at a rate of £1 for every £2 earned above that threshold, and childcare benefits worth approximately £23,000 are also at risk – could encourage additional pension contributions to bring taxable income below it. As covered in Healey's Budget statement, there was no movement on thresholds that would alleviate this pressure.
Frozen thresholds and the tax trap squeeze
The full new State Pension rose by 4.8% in April under the triple lock guarantee, but Wednesday’s Budget confirmed a further 3.9% rise from April 2027, driven by average earnings growth, taking the full new State Pension above £13,000 a year. With income tax thresholds remaining frozen, even those on modest private pensions may find more tax deducted at source, often without understanding why.
"I've often heard people say, ‘there's a mistake, why am I not getting as much money every month?’," Moffat said. "It's because the State Pension's gone up, and the easiest way to tax that is if you've got a workplace or a personal pension."
The Budget included a new pensioner tax allowance to keep lower-income pensioners outside the tax net, which Moffat described as a practical solution to a significant administrative problem. It does not, however, resolve the broader structural issue for those with more than minimal private income. Clients with defined benefit pensions or annuities have no flexibility to reduce their taxable income, meaning higher-rate exposure becomes unavoidable.
One further development Moffat flagged as significant for later-life clients is the incoming change to pension inheritance tax treatment. From April 2027, pensions will become subject to inheritance tax – a shift she described as a "really big deal" for advisers whose clients are thinking about estate planning.
With the nil-rate band also frozen for an extended period, more families are already looking at gifting strategies to reduce future inheritance tax exposure. It is a conversation that sits beyond the mortgage itself, but one that advisers in the later-life space are increasingly being drawn into.
Landlord tax and the broker ripple effect
Advisers with clients who hold residential property portfolios across England, Wales, and Northern Ireland will want to pay close attention to the rental income tax change. A further two-percentage-point surcharge – adding to an existing 2% levy and bringing the total to 4% – leaves basic-rate landlord taxpayers paying 24% from April 2027.
"That's going to have a significant impact on you," Moffat said. "Especially if most of your income comes from rental properties."
If landlords exit the market or reduce their holdings, rental supply could tighten and rents rise, making it harder for prospective buyers to accumulate a deposit.
"If you're paying more in rent, it's harder to save the money for a deposit," Moffat said. "It's not just the implication on one person. It's the ripple effect from that we need to think about too."
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