An Autumn change for pensions?

Last year, a whirlwind of change hit the pensions industry as pension schemes and advisers raced to prepare for the removal of the lifetime allowance, whilst HMRC scratched their heads over exactly how it could be done all the way up to the end of tax year deadline.

Although the changes made it across the line, more work is still needed to fully deliver the last government’s vision. We continue waiting for the long-promised regulation amendments intended to fix a host of drafting errors which have left many clients in limbo unable to fully access their pensions.

Progress is being made, albeit slower than we’d all like. Over the summer HMRC held a short consultation on drafts of the regulations. This is good news, and it should not be understated what an enormous task this has been for HMRC. Crucially, though, we still don’t know exactly when these regulations will be passed. HMRC said in their August newsletter it would be “as soon as the parliamentary timetable permits after the summer recess”, but with another recess starting for party conference season we’ll likely find ourselves waiting until later in the Autumn at the earliest.

The Autumn also brings with it the new Chancellor’s first budget, and rumours around pensions are swirling once again. Clients will always want to try to pre-empt any changes that could impact them, and with last year’s rules still not finalised there is even greater uncertainty around pensions than usual.

One rumour causing some clients worry is the possibility the Chancellor may want to reduce the maximum amount of tax-free cash which can be taken. Currently this is set at £268,275 unless the client holds a form of transitional protection. Freezes to the lifetime allowance kept it at this level since 2020/21, and it is now baked into legislation as the lump sum allowance. Reducing it would be a deeply unpopular move, but the government has been clear we’re in for a “painful” budget, and with so many other avenues for raising funds already ruled out – income tax, national insurance, VAT, corporation tax – it’s easy to see how pensions could be targeted.

Yet after so much upheaval, I hope the Chancellor instead opts to allow for the dust to settle and give time for the new rules to be embedded properly before making any further changes to private pensions. Retirement planning is a long-term game and repeatedly tearing up the rule book only serves to undermine confidence in the system and reduce incentive to save and invest.