Pension news and the autumn budget 2024

As we navigate through the financial landscape shaped by recent UK Government budgets and global market dynamics, it's useful to understand how these developments impact your Defined Benefit (DB) pension.

Recent actions by the US Government, including tariff policies, have led to increased market volatility. While such fluctuations can be concerning, it's important to remember that the Scheme is designed to provide stable and predictable retirement income.

How we minimise risk to your DB pension:

Long-term investment strategy: The Scheme invests with a long-term perspective, which helps mitigate the impact of short-term market volatility.
Regulatory protections: UK DB pension schemes are subject to stringent regulatory oversight, ensuring they are well-funded and managed prudently.
Employer covenant: The sponsoring employer's commitment to funding the pension scheme provides an additional layer of security.

While the financial landscape continues to evolve, the structure and regulatory framework of your DB pension scheme are designed to protect your retirement income.

The new Labour government delivered its first budget on 30 October 2024. Despite speculation about potential changes, many pension-related allowances remain unchanged.

The following outlines the current position at the time of this communication.

Inheritance Tax (IHT)

Currently, if a member dies, they’re able to pass their pension on to a beneficiary. This can potentially be paid free of tax depending on the members age at the time of their death.

However, a proposal has been introduced to remove this exemption. Under the proposed change, inherited pensions upon death, regardless of the age of the member at the time of their death, will be subject to IHT. This is planned to come into force from April 2027.

The State Pension

The triple lock, which is the basis for how the State Pension increases each April, will be retained for the duration of this Parliament. The State Pension has increased by 4.1% from 6 April 2025.

To find out more about the State Pension and the triple lock, click here.

Pension allowances

Since our last newsletter, there have also been changes to some pension allowances set by the Government that determine when a member may pay tax on their pension savings.

The Annual Allowance (AA)

The AA is the maximum amount of money you can save in pension benefits each year without incurring a tax charge. This is set at £60,000 for the 2025/2026 tax year.

Pension Commencement Lump Sum (PCLS)

When you start drawing your pension, you can choose to take up to 25% of your pension as a tax-free lump sum. The maximum amount you can claim tax-free is currently £268,275.

The Tapered Annual Allowance (TAA)

The TAA reduces the AA for high-income individuals. If your adjusted income is over £260,000, your AA is reduced by £1 for every £2 over this threshold. The minimum AA under this rule is £10,000.

Adjusted income includes taxable income plus pension contributions, including those from your employer. The government website has more information on how to calculate income for the TAA here.

Carry Forward

If your pension savings exceed the AA, you may still receive tax relief by using Carry Forward, which allows you to use any unused AA from any of the previous three tax years. There’s still the possibility of using Carry Forward if you’re subject to the TAA, but not if you’re subject to the Money Purchase Annual Allowance.

The rules around this are complex and you should take financial advice before deciding to use Carry Forward.

Lifetime Allowance (LTA) abolition

Prior to 6 April 2024, the LTA was the maximum value of pension benefits (excluding any State Pension) that you could receive before having to pay a tax charge. This was abolished from 6 April 2024 and replaced with the three separate allowances below:

Lump Sum Allowance (LSA)

You can normally choose to exchange up to 25% of your pension for a tax-free cash lump sum (your PCLS). The LSA limits the maximum tax-free amount to £268,275.

Lump Sum and Death Benefit Allowance (LSDBA)

The LSDBA limits the total amount of tax-free lump sums that can be paid out to £1,073,100. Amounts taken under the LSA, serious ill-health lump sums or death benefit lump sums count towards this limit.

Overseas Transfer Allowance (OTA)

This is the maximum amount that you can transfer to a Qualifying Recognised Overseas Pension Scheme without incurring a tax charge. The OTA is currently set at £1,073,100. Any benefits exceeding the OTA are subject to a 25% overseas transfer charge which must be deducted from the payment.

Rules around taxation and pensions can be complex. If you’re making important decisions about your pension savings or your retirement you should get independent financial advice from a qualified financial adviser. You can visit the MoneyHelper website if you need help finding an adviser.

We’ve provided some useful links for further information about these allowances: