Pension savers warned against making ‘unnecessarily costly’ move after Budget tax changes

Ben Klein, senior wealth manager at financial planning and wealth management firm Tideway Wealth, warned that people approaching retirement have fewer opportunities to recover if they make the wrong decision.

He told GB News: “People making decisions about retirement often cannot reverse them easily. Someone in their thirties may be able to adjust contributions over time; someone about to stop working has fewer opportunities to recover from a pension pot that is suddenly exposed to inheritance tax.”

Among the most significant changes is the decision to include unused pension funds within a person’s estate for inheritance tax purposes from April 2027.

The measure represents a major shift for people who built up retirement savings under the previous rules, when pensions were often viewed as a tax-efficient way to pass wealth to their families.

Tom Minnikin, partner at DJH group’s specialist tax firm Forbes Dawson, said: “For those with private pensions there was no reprieve from the imposition of inheritance tax from April 2027, a fundamental change for those who built up their savings under the old rules, although at least perks such as the 25 per cent tax-free lump sum have been left alone.”

Mr Klein said the changes were “particularly relevant for people in their forties and fifties earning between £50,000 and £80,000, who are being squeezed from both sides.”

However, he stressed that none of the Budget measures will change anyone’s tax bill this year.

He said: “There is also a distinction between a policy announced in the Budget and one which has already been legislated for.”

The inheritance tax changes affecting unused pension funds have already passed into legislation. Other Budget measures remain subject to the legislative process and could still be amended.

Mr Klein warned: “Getting that timing wrong could lead somebody to make an unnecessarily costly decision.”

The wider tax environment is also putting pressure on people trying to prepare for retirement.

Savers and landlords will also face a further two percentage point increase in tax rates on savings and property income from April 2027.

This comes on top of a similar rise announced last November, although the Treasury has said 84 per cent of income taxpayers will not be affected.

There was some positive news for savers. The Chancellor scrapped the planned reduction in the Cash ISA limit to £12,000 for people under 65, meaning the full £20,000 allowance will remain available.

Mr Minnikin called the decision “sensible” and welcomed the rejection of “unwieldy rules that planned to tax uninvested cash held within stocks and shares ISAs.”

The Budget also introduced a new Pension Tax Allowance, which is expected to protect around 500,000 pensioners from income tax in 2027-28.

The number benefiting is forecast to rise to around one million by 2029-30.

Despite these changes, Mr Klein said savers should avoid making immediate decisions based on Budget headlines.

He said: “The sensible response is not to cash in a pension or sell investments ahead of April.”

Instead, people should first work out what their income will look like in 2027-28 and account for every source, including pensions, savings and other income.

Mr Klein added: “People should establish what their income will look like in 2027/28 from every source, examine how much of their ISA and pension allowances they are using, and seek regulated advice where appropriate before changing their financial plans.

“Ideally, that means one consolidated plan that brings together pensions, savings and other income, measured against the retirement they actually want.

“The precise effect will vary with how their income is made up, not just how much of it there is.”