Pension & retirement
Russell Bignall
As we head into Autumn, the Budget starts to loom large on the horizon – and with it, the inevitable Budget rumours.
I don’t have a crystal ball so I can’t tell you what the Chancellor will announce on October 28, but I do have one piece of advice right now:
Don’t believe the hype.
Every year, rumours multiply in the media about what the Budget will contain and how it will affect you.
While some rumours may have a grain of truth to them, they rarely turn out to be accurate. They can also cause serious damage to your wealth if you act on them.
In 2024 and 2025, claims that the Government was planning to take away the tax-free lump sum element from private pensions swept the financial press.
Tax-free pension lump sum withdrawals increased by more than 60% from £11.25bn in 2023/24 to £18.08bn in 2024/25.
The acceleration was particularly striking in the six months to March 2025 with £10.43bn withdrawn as tax-free cash. This was 72% more than the £6.07bn withdrawn in the corresponding six months of 2023/24.
That means the UK consumer moved £26bn from a tax-advantaged investment into a taxed environment. This is certainly good for the Chancellor of the Exchequer; maybe not so good for an individual.
Taking tax-free cash out from pensions is like toothpaste: you cannot put it back in the tube if you’ve taken too much out.
While figures are not yet available for the 2025/26 tax year, the indications show similar levels of withdrawals have continued.
In the end, no change was made to tax-free pension lump sums. While many of those who took their lump sums may always have intended to do so, it’s a safe bet that with figures like those above, many were spooked into premature action.
At Fairstone, we warned of the dangers of reacting to speculation around pension lump sums at the time. We also showed how cashing in your lump sum all in one go can mean you miss out on further tax-free money later on.
The tax-free element of the pension is an extremely effective way to manage income and taxation in retirement. You can use it to pay off debts, to finance dream holidays or phase retirement.
Many more favour flexibility to do something they enjoy rather than take a complete hard stop at retirement.
You should never take lightly the decision when and how to access that sum or make a decision on the strength of speculation in the media.
I’m not going to make myself a hostage to fortune by saying the Government will never change the rules on pension lump sums – just look at what changes have been brought in about inheritance tax on pensions.
But what I would say is that it is much better to base your financial planning on facts instead of speculation. Consulting a financial adviser adds an invaluable external expert perspective.
Practising what I preach, here are some important factual events coming up in the next few years. You should take these into consideration when making your financial plans.
The Government is aiming to have all pension schemes connected via its new pension dashboards system by October 2026.
This should enable people to see all their pensions information online, securely and in one place for the first time.
You can find more about the dashboards programme by clicking here.
From April 6 2027, most unused pension funds and death benefits will become part of your estate for Inheritance Tax purposes.
This could mean major changes in how people use their pension and plan their estate.
Find out more by reading our guide to the changes.
From April 2028, for most people the minimum age at which they can access a private pension will rise from 55 to 57.
If you are planning to retire early or take advantage of your pension commencement tax-free lump sum, you will need to check when your pension will become available.
From April 2029, only the first £2,000 of employee pension contributions made through salary sacrifice each year will be exempt from National Insurance contributions.
If you regularly pay in more via salary sacrifice, you may want to review how you fund your pension.
You can find out more about these changes by reading through our guide for employees and employers.
An expert financial adviser will explain these and other changes, how they affect your financial plan and how to navigate them.
Your adviser will also review your pension with you before you make any major decisions about it.
To ensure you can separate fact from rumour and act accordingly, get in touch with one of our advisers.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is also not a reliable indicator of future performance. Always seek professional advice before making financial decisions.
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There is currently no confirmed change that abolishes the tax-free pension lump sum. Pension rules can change, however, so it is important to distinguish confirmed Government policy from Budget speculation before making decisions about accessing your pension.
The Budget may result in changes to pensions and taxation, but until announcements are made, it is important not to treat media speculation or rumours as confirmed policy. Any proposed changes should be assessed in the context of your individual financial circumstances.
The tax-free lump sum remains an important part of pension planning under the current rules. Whether and how much you can take depends on your circumstances and pension arrangements, so you should check the rules applying to you before accessing your pension.
For most people, the normal minimum pension age is due to increase from 55 to 57 on 6 April 2028. Some people may have a protected pension age, so the change will not necessarily apply to everyone in the same way.
From 6 April 2027, most unused pension funds and certain death benefits are due to be brought within the scope of Inheritance Tax. This could make pensions and estate planning more closely connected than they have been historically.
The pensions dashboards programme is intended to enable people to access information about their different pensions digitally in one place. The Government is aiming for pension schemes to connect to the system by October 2026.
Yes. From April 2029, only the first £2,000 of employee pension contributions made through salary sacrifice each year will be exempt from National Insurance contributions under the announced changes. The impact will depend on your circumstances and how much you contribute through salary sacrifice.
You should not take a pension lump sum simply because of an unconfirmed Budget rumour. The decision should be based on your retirement objectives, tax position, income needs and wider financial plan, rather than speculation about what the Government might announce.
For further information, please contact:
Pension & retirement
Pension & retirement
Pension & retirement
Pension & retirement
Pension & retirement
Pension & retirement
For further information, please contact: