If brought in the 40 per cent ‘supertax’ could cause serious issues for pension savers, an expert said
There could be major changes to pensions in the Autumn Budget(Image: Getty)
Speculation is rife about what changes to pensions could be in the Autumn Budget. There have been reports there could be changes to the tax-free lump sum or the rules around salary sacrifice. Some finance experts are sharing what new policies they think the Government should bring in, with one calling for a major change to how tax relief on pensions works.
Nishi Patel, managing director at accountancy firm N-Accounting, said: “I don’t think the tax benefits on pensions are too generous, however the freedom of investment definitely is. Why should I be getting UK tax relief on my investments when most of them aren’t in the UK?
“The Government needs to steer the investment into British shares and Government bonds and not allow tax relief for non-domestic products.” Under current rules, you can get tax relief on your pension contributions in line with your marginal income tax rate.
READ MORE: DWP ‘you cannot’ message for people who live in this region over £25 payments
This means if you are on the basic 20 percent rate, you can get 20 percent tax relief on your contributions, meaning for every £80 you pay in, the Government adds £20, so you are effectively paying in £100.
Changes to pensions which are definitely coming up
Chancellor Rachel Reeves announced in the Autumn Budget 2024 that pensions will become subject to inheritance tax from April 2027. The specifics of how this will work have yet to be set out.
A previous Government consultation on the plans provided these details: “Most unused pension funds and death benefits will be included within the value of a person’s estate for inheritance tax purposes and pension scheme administrators will become liable for reporting and paying any inheritance tax due on pensions to HMRC.” Mark Plewes, head of Pensions Technical at WBR Group, said more details are needed about how the tax will work.
Chancellor Rachel Reeves could make changes to pensions in the Autumn Budget(Image: Getty)
He said: “The timetable is ambitious, and there are still unanswered questions about how the rules will work in practice, particularly around valuations, reporting, and payment deadlines. If these complexities aren’t resolved, a delay would be sensible to avoid chaos for personal representatives and pension providers.
“We’ve urged policymakers to prioritise clarity and practicality over speed, because getting this wrong could create significant administrative burdens and distress for bereaved families.” Mr Plewes urged people who could be hit by the new tax to plan ahead.
He said: “If you have a significant pension pot and other assets, it’s vital to review your estate planning now. This might include updating your will, revisiting your expression of wishes forms, and considering strategies such as lifetime gifting or using life assurance to cover potential liabilities.
“Every individual’s circumstances are different, so professional advice is essential to balance inheritance tax exposure with income needs in retirement. Acting early gives you more options and avoids rushed decisions later.”