One of the key topics that is expected to undergo significant change as part of the Autumn Budget, as well as being the subject of much speculation, is pensions.
The rumour mill has suggested a number of things that may impact pensions including the introduction of the new taxes, changes to reliefs, or limitations when drawing out from your pension pot.
To help explain the potential changes in more detail, we sat down with our experts, Josh Draycott, Tax Manager, and Jack Farmer, Chartered Financial Planner, from our partners at Wealth Experts, to answer our questions and share their own insights.
What changes to pensions do you think will happen as part of the Autumn Budget?
Jack: The big change in my mind is that the landscape of pension policies may be evolving, based on some early indications on the lead up to the Autumn Budget. These potential adjustments could influence the retirement planning for many people.
Josh: It’s important for individuals to keep an eye on developments and consider how they might adapt their approach if needed. Jack and I believe there are 3 main changes that seem to be gathering the most pace which are:
Tax Relief Adjustments
Josh: There’s talk of altering how tax relief is applied to pension contributions. One possibility is restricting it to a set rate, which could impact the amount of tax relief higher earners receive from their pension contributions.
Although rumoured changes could limit the relief attached to pension savings, we would still expect that pensions will be a useful tool in tax planning. We can work with you to ensure that you are utilising these reliefs in full.
Tax-Free Cash Limitations
Jack: The current system sees most people reaching the age of 55 being able to withdraw 25% of their pensions tax free, up to the standard maximum tax-free amount of £268,275. Whilst there may not be a change to the percentage, the maximum amount of tax-free cash that can be drawn from pensions might be capped at a lower level.
This could affect individuals who have planned to take a large tax-free lump sum from their pension pot.
Death Benefit Taxation
Josh: There are discussions about potentially introducing taxes on pensions upon death by removing the income tax exemption for death before 75 in certain cases. Alternatively, they could remove the inheritance tax-free status and make pensions subject to a flat rate of tax upon death. This could have implications for estate planning and inheritance.
Do you expect any surprises to be announced on Wednesday 30 October?
Jack: Budgets can always have the odd surprise and it’s worth noting that major, unexpected changes are not unprecedented. The former Conservative government’s abolition of the lifetime allowance, which caught many by surprise, serves as a reminder that unforeseen alterations can occur.
A lot of what has been said in the news are rumours and speculation at this point and we would advise waiting until after the budget before making decisions on finances.
Is there anything else you’d like to add about the Autumn Budget?
Jack: For me, it’s the enduring value of pensions. Despite potential changes, pensions remain one of the most tax-efficient ways to save for retirement.
The government recognizes the need for incentives to encourage long-term savings, which suggests that even if alterations occur, pensions will likely maintain their fundamental advantages.
What is your long-term perspective?
Josh: When considering these potential changes, it’s crucial to remember that pensions are long-term savings vehicles. Over extended periods, tax rules are bound to evolve.
That’s a bit of good news in the current climate of ‘uncertainty’. Historically, when significant changes have been implemented, transitional protections have been introduced to ensure individuals are not disadvantaged.
Jack: A prime example of this was the introduction of Fixed and Individual Protections when the lifetime allowance was reduced, allowing people to lock in their lifetime pension allowance at the prevailing level.
It’s also worth noting that some changes may not take effect straight away, allowing people time to adapt to changes. What could happen is that some changes take effect from the 6 April 2025 for example.
It’s all speculation at this point. We don’t know what changes will happen, but what we do know is that there are guaranteed to be changes now, or in the future, so it’s important to work with an expert adviser who can help to plan for anything.
Here to help
While changes to the pension system may be on the horizon, the core benefits of pension savings are expected to stand the test of time. As always, it’s advisable to stay informed and consult with financial professionals to understand how any changes might affect your personal retirement planning strategy.
If you’re looking for pension advice, simply fill out the form below and one of our experts will be in touch shortly.
