Where we are with pensions at the moment

Pensions remain one of the most valuable and versatile tools available for long-term financial planning.

They provide not only a way to save for retirement, but also a tax-efficient structure for investing, drawing income, and planning your estate.  

With ongoing speculation in the headlines about possible reforms, and with the changes announced in the Autumn Budget 2024, now is a good time to recap the current rules and what they mean for you. 

The current position

Today, pensions offer a wide range of benefits, including: 

• Tax relief on contributions – subject to the annual allowance, currently £60,000 per year, with dependent on circumstances, unused allowance from the past three years possibly available to carry forward. 

• Tax-free growth – investments within the pension wrapper are not subject to Income Tax or Capital Gains Tax. 

• Tax-free cash – in most cases, up to 25% of your pension benefits can be taken as a lump sum free of tax, subject to a maximum of £268,275 (unless Lifetime Allowance protection applies). 

• Flexible access – under pension freedoms, you can choose how and when to draw income in retirement, whether through lump sums, flexi-access drawdown, or an annuity. 

• Estate planning advantages – pensions currently sit outside of your taxable estate for Inheritance Tax (IHT), making them a highly efficient vehicle for passing on wealth. 

These features make pensions central to retirement and estate planning strategies, and they remain so today. 

Changes announced in the Autumn Budget 2024

The Autumn Budget confirmed some important changes to pensions, most notably around Inheritance Tax: 

• Inheritance Tax on pensions – from April 2027, pensions will fall within the scope of Inheritance Tax (IHT). Until then, pension savings remain outside of your taxable estate, which continues to make them one of the most effective ways of passing wealth between generations. 

• Contribution allowances – the annual allowance remains at £60,000, with carry-forward rules intact. For higher earners, the tapered allowance still applies. 

• No change to tax-free cash – despite speculation in the press, the Government has not announced any reforms to reduce or remove the ability to take up to 25% of a pension tax-free. The rules remain as they are.

Tax-free cash: why caution makes sense

One of the most common questions we are being asked at the moment is whether it makes sense to take tax-free cash now, in case rules change. While understandable, the reality is that moving early often creates more drawbacks than benefits. 

Here are some important considerations: 

• Future growth – money left inside a pension continues to grow tax-free. Once withdrawn, it may face Income Tax or Capital Gains Tax on future returns. 

• Locking in entitlement – crystallising benefits now fixes your tax-free cash entitlement at today’s level and prevents you from applying the 25% allowance to future investment growth. 

• Inheritance Tax exposure – funds withdrawn enter your estate and could be taxed at 40% on death, whereas pensions remain outside of IHT until 2027. 

• Costs and process – accessing benefits is not automatic; it involves regulated advice, paperwork, and sometimes provider fees. 

• Speculation vs. reality – governments often float ideas about reform, but not all materialise. History suggests major changes are usually accompanied by protections for existing savers. 

For these reasons, unless there is a genuine need for cash today, retaining funds within the pension wrapper often remains the stronger long-term strategy. 

Pensions continue to provide powerful advantages for retirement planning and wealth transfer. The upcoming change to IHT in 2027 is significant, but there remains a clear window of opportunity to make the most of pensions as part of estate planning before then. At the same time, speculation about tax-free cash should not drive hasty or irreversible decisions. 

The key takeaway is that the fundamentals of pensions are unchanged: they remain one of the most tax-efficient, flexible, and valuable investment tools available. The challenge is ensuring your pension strategy works for your circumstances, balancing immediate needs with long-term goals. 

If you have questions about how the current rules affect you, or how the 2027 changes may impact your plans, please speak with your Financial Planner. 

To discuss your own personal circumstances please contact our Financial Planning team on +44 (0) 330 124 1399 or provide your details via our online enquiry form