Autumn Budget 2024: How Your Pensions and Retirement Will Be Affected

After much speculation and rumours, Chancellor Rachel Reeves delivered the first Budget for the Labour government in 14 years.

Based on her earlier warnings that ‘difficult’ decisions were needed to reset taxes and the direction of public spending to make up for the ‘£22bn black hole that was inherited from the previous government’, we knew change was inevitable. And that’s exactly what we’ve got. Changes that are likely to impact everyone in Britain, both now and for years to come.

Those bearing the biggest brunt of incoming policy changes and higher taxes though will be employers and those with bigger pockets, not the ‘working people’ as the government pledged earlier this week.

Looking specifically at those policies that impact pensions and retirement, there weren’t any big surprises. Which we’re sure is a big relief for many!

To avoid you having to read all the fine print though, here’s a quick summary of what’s changing and what rules remain the same.

1. Pensions

• State Pension Increase: Good news for pensioners! The State Pension will continue to rise under the Triple Lock System. This means it will go up by whichever is higher: inflation, average wage growth, or 2.5%. The Chancellor confirmed that next April, the State Pension would rise by 4%. So, if you are on the old State Pension, you currently get £169.50 a week but this will increase to £176.28 for 2025/2026. And for those on the new State Pension, you’ll pocket an extra £8.85 per week with a total of £230.05, up from £221.20. That is a £470 increase for over 12 million pensions in the UK.
• Pension Lifetime Allowance (LTA): There’s no change to the previously abolished LTA. You can continue to grow your pension pot without worrying about a cap on tax-free growth, which is a win for high earners.
• Pension Drawdown Flexibility: Despite the media speculation, the rules around pension drawdown remain unchanged, meaning you can continue to access your pension funds flexibly—includes your 25% tax-free.

2. Income Taxes

• Personal Allowance: The tax-free personal allowance—the amount you can earn before paying income tax—remains frozen until 2028. This will offer some relief, especially for those with multiple sources of retirement income (like pensions, savings, and part-time work). However there could be tax implications for pensioners. With the new State Pension increasing, there’s very little wiggle-room before you’ll need to pay income tax, so one to watch out for. When this freeze ends in 2028 though, personal tax thresholds will increase in line with inflation.
• Tax on Pension Income: No changes to the basic, higher, or additional income tax rates. Your pension income will continue to be taxed as regular income.

3. Inheritance Tax (IHT)

• Thresholds Frozen Until 2030: The inheritance tax threshold remains unchanged for at least another 5 years, which means estates worth up to £325,000 can be inherited tax-free. This rises to £500,000 if the estate includes a residence passed to direct descendants, and £1Million when a tax-free allowance is passed to a surviving spouse or civil partner. Anything above that, will be taxed at 40%.
• Pensions To Be Included as Assets: This is by far the biggest change when it comes to pensions. From April 2027, inherited pensions will be subject to inheritance tax. Under current rules, if you die before the age of 75, the person inheriting your pension will not have to pay tax on these retirement savings. But this is set to change, potentially forcing more estates to have to pay IHT. We highly recommend that you revisit your estate plans to ensure your pension is factored in, as it could have a big impact on your loved ones when you’re gone.
• Business and Agricultural Assets: The Chancellor announced that from April 2026, the first £1Million of combined business and agricultural assets will continue to be free of inheritance tax liabilities. However, for assets over £1Million, IHT will apply with 50% relief.
• Gifts and Exemptions: No changes have been made to gifting rules, so retirees can still gift up to £3,000 per year tax-free, plus small exemptions for weddings and other occasions. It’s a good time to consider passing wealth to your loved ones while taking advantage of these allowances.

4. Capital Gains Tax (CGT)

• CGT Rates Increase: The Chancellor announced that both the lower and higher rate of Capital Gains Tax will be increased. The lower rate will increase from 10% to 18% and the higher rate from 20% to 24%. Despite these changes, Reeves said that the UK ‘will still have the lowest Capital Gains Tax rate of any European G7 economy. So, if you’re selling investments, you need to be mindful of how CGT allowance might impact your tax bill.

5. Tax Relief for Savings

• ISA Limits: The ISA allowance (Individual Savings Account) stays the same at £20,000 per year. If you’re using ISAs as part of your retirement planning, they remain a tax-efficient way to save and invest, with no tax on interest, dividends, or capital gains.
• Savings Allowance: The personal savings allowance also remains unchanged, allowing basic rate taxpayers to earn up to £1,000 in interest tax-free, and higher rate taxpayers to earn up to £500.

Have Questions?

If you’re unsure of how these changes will affect your retirement and estate plans or you want to ensure you’re best positioned for the future, please get in touch with us today by clicking here. Our expert team of pension and retirement specialists at Joslin Rhodes are always here to help.

Image used in header courtesy of creator: Zara Farrar. Copyright: Zara Farrar / HM Treasury. This image has been updated. Get the original image on: Flickr | License details

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