You no doubt read your Autumn Budget update back in October.

Labour’s first Budget in 14 years was also the first ever to be delivered by a female chancellor. Rachel Reeves had promised to make “tough choices” and has faced backlash on certain measures, including from UK business owners, millionaires, and farmers.

One significant change to the pension landscape, due to come into force in 2027, could “disincentivise retirement saving” according to some experts. But is this really the case?

While Reeves’ announcement might have a significant impact on certain areas of your long-term plans, knee-jerk reactions might be more damaging than the measures themselves.

Keep reading to find out what was announced and how it could affect you.

Pensions could move into the Inheritance Tax net from 2027

Under current rules, your unused pension funds can be passed to a chosen beneficiary tax-free in some instances:

• On death before age 75, the whole of your unused pension fund can usually be passed to your chosen beneficiary tax-free.
• On death after the age of 75, unused pension funds can still be passed to your chosen beneficiary, but they will pay tax at the highest rate they pay.

Your pension beneficiary is chosen via your pension provider, using an “expression of wish” form, rather than through your will.

In her Autumn Budget, Rachel Reeves referred to this mechanism as a “loophole” that will be closed from April 2027. While the measure still needs to be consulted on, it would have the effect of moving the pensions you hold (but have not yet taken) into your estate for IHT calculation purposes.

The measure is designed to increase the government’s IHT take, but tax figures are already on the rise.

Frozen thresholds have seen rising IHT receipts for the Treasury

Government figures show that the Treasury’s IHT receipts have been generally rising over recent years.

Source: Gov.uk

IFA Magazine, meanwhile, confirms that these figures have continued to increase since 2021, reaching £7.5 billion in 2023/24. For the 2024/25 tax year, the government’s IHT take is expected to exceed £8 billion.

This rise has been helped by frozen thresholds.

IHT is generally payable at 40% on the portion of an estate that exceeds the “nil-rate band”. This threshold currently stands at £325,000, as it has done since 2009. Reeves used her Autumn Budget to extend the current freeze to 2030.

The additional “residence nil-rate band”, meanwhile, applies when you pass a main residence to a direct descendant. This threshold was introduced in 2017 and currently stands at £175,000. It too has been frozen until 2030.

As the value of your assets increases over the next six years, so too could the chance of your estate falling into the IHT net. Reeves’ proposed change to pension taxation will only add to this likelihood.

Remember that your pension is designed to provide an income in retirement

It’s important not to allow this potential change to affect your retirement planning.

One reason for this is that the measure has yet to be consulted on, so it may not come into force at all. More important, though, is the fact that the primary goal of your pension savings is to provide you with your dream lifestyle in retirement.

Your pension is incredibly tax-efficient, so work to stay on track and don’t be distracted by the noise of government changes or any other external concerns. Emotional decision-making and knee-jerk reactions could throw your carefully considered plans off course. If your goal hasn’t changed then your strategy doesn’t need to either.

Get in touch

At The Pension Planner, our team of experts is on hand to provide reassurance and help you to manage your retirement and your estate and legacy plans. If you have any questions about the measures that were announced in the budget, get in touch. Email info@thepensionplanner.co.uk or call 0800 0787 182.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The Financial Conduct Authority does not regulate estate planning or tax planning.