Imagine sitting with someone who is about to start saving for the long term and quite sensibly considering pensions as part of their strategy.

Having to explain the features, so far so good: generous tax reliefs, tax free growth, employer contributions and a lump sum on retirement.

You are then asked if the rules get changed very often?

“Only more than 10 times in the last 20 years and there is now more speculation they will be changed again.”

“Great, that gives me a lot of confidence this is the savings vehicle for me!”

After the introduction of Inheritance Tax (IHT) on pensions in the Autumn 2024 Budget you then might have hoped that was the end to the tinkering to the pensions regime. But now we now find speculation over what tax-free lump sum might be available in the future.

What is more frustrating is any change of this nature to pensions will do very little to improve the finances of the country. The tax that such measures might raise will not address the increasing budget deficit and debt pile the country faces.

You can say the same thing about other rumours circulating - changes to the gifting regime and allowances, property taxes, wealth taxes. I could go on.

All of these would be politically driven rather than a genuine attempt to address the fiscal position of the country.

Various numbers circulate as to what spending gap needs to be addressed, most in the territory of 10s of billions. It is hard to see how you would deal with this without raising one of the main taxes, breaking a manifesto commitment. 

Announcing a longer freeze on increasing various tax thresholds (fiscal drag) would make the Office for Budget Responsibility’s (OBR) projections quite a bit better, but that still really doesn’t do it. The government also has to be mindful of raising revenue without it being seen to be detrimental to economic growth. 

I’m quite glad I’m not sat in Labour’s shoes, whether you believe this fiscal predicament to be self-induced or not!

Should I take any financial planning steps in light of this?

You should talk to us before any decisions are made and if you are worried about any prospective changes. However, in general terms, our thoughts are that you should only consider bringing forward what you were planning to do anyway.

This includes decisions such as gifts to children or trust and other tax structures. It also includes taking the lump sum from your pension – specifically to spend or give away. 

And, as I've said previously, you should talk to us if there any forthcoming capital requirements that you want to fund from the portfolio that we haven’t already planned for.

We have been carefully considering if there are any of our clients we should be proactively contacting to discuss actions because of very specific financial circumstances and you should hear from us where relevant.

It would be very hard, and unprecedented, to introduce a change to the pension lump sum rules with immediate effect due to the complexity of the associated legislation and consequences for pension administrators.

Conclusion

Uncertainty over the ‘rules of the game’ is never helpful when making long term plans. We can only hope pre-Budget speculation dies down in future years. 

In the meantime, here’s hoping speculation remains speculation.