Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

How could pensions change in the Budget?

With three weeks until Philip Hammond’s first Autumn Budget, we have seen a lot of speculation in the press about possible changes to pension allowances and tax relief. In this article we look at what could change on 22 November, and how you can ensure your retirement plans remain on track – whatever the Chancellor pulls out of the bag (or briefcase).

Andrew James
01 November 2017

Balancing the Treasury’s books

Any changes to pensions are likely to be made in an attempt to boost the Treasury’s finances. The cost of pension tax relief was an estimated £38.2 billion in 2015/16*, so a reduction in tax relief rates or allowances could help to balance the books. Pensions are also seen as an easy target for the Chancellor because their rules are already so complex.

Flat-rate pension tax relief

One option is to switch to a flat rate of tax relief. Currently, the Government adds up to 45% to pension contributions depending on how much Income Tax you pay. A new system could see everyone’s contributions topped up by the same amount regardless of how much tax you pay. This would likely be a bonus for basic-rate taxpayers, but could see higher and additional-rate taxpayers worse off.

Annual allowance reduction

We may see a reduction to the pension annual allowance – this is the maximum amount of money you can pay into your pension each year. The allowance is currently £40,000, but this could change on 22 November.

Greater numbers of higher earners could also see themselves qualify for the new tapered annual allowance. Currently, people earning more than £150,000 a year will have their annual allowance reduced by £1 for every £2 they earn over this amount, down to a minimum of £10,000 for those earning in excess of £210,000. There have been rumours that this £150,000 limit could be reduced in the Autumn Budget.

The pension lifetime allowance

The pension lifetime allowance has been cut numerous times in recent years, gradually falling from £1.8 million in 2011/12 down to £1 million this year. In July 2015 George Osborne promised to increase the allowance in line with Consumer Prices Index (CPI) inflation from April 2018, but there is still time for a U-turn – and even a decrease in the allowance to boost Treasury revenue.

What can you do?

With pension allowances and tax relief up in the air, it could be a good idea to pay as much into your pension as you can this year. This ensures you will make the most of the current generous tax relief on contributions. If you have sufficient earnings, you could also look at making extra contributions through pension carry forward.

If you need a new home for your pension, you could consider our award-winning Best SIPP. It gives you access to all our latest investment research with a wide range of investment options. You can choose from more than 2,500 funds, nearly all UK shares, and our range of Ready-made Portfolios – where our experts will invest for you.

Important information

*According to ONS Personal Pension Statistics, September 2017.

SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you then a SIPP might not be right for you. Please contact us for guidance or advice if you are unsure whether a SIPP is right for you.

Ready-made portfolios like ours are offered by many fund managers. You may also hear them referred to as multi-asset funds. The Portfolios within our range are called Tilney Bestinvest Multi-asset Portfolios and are administered by Investment Fund Services Limited (IFSL), a subsidiary of Marlborough, one of Europe’s leading financial groups. Funds within each Portfolio are chosen and managed by our research team but it is up to you to choose the Portfolio that is right for you.