Financial experts are warning pensioners against making rushed decisions ahead of next week's Autumn Budget, with concerns focused on possible changes to tax-free pension withdrawals and the treatment of inherited wealth. No further restrictions on pension lump sums have been confirmed.
Chancellor John Healey is set to deliver his first Budget under Prime Minister Andy Burnham on Wednesday, October 28. The Budget comes weeks after the government announced plans to reform the state pension triple lock from April 2030.
Under the existing system, the state pension rises each year by whichever is highest: inflation, average earnings growth or 2.5%. The existing triple lock remains in place until April 2030. However, Burnham's Government plans to replace the earnings element with a mechanism designed to maintain the state pension's value relative to wages over time, rather than allowing it to grow at a consistently faster rate than earnings.
Financial pressure on older people
Research published by Independent Age this month found that 43% of people aged over 65 in Great Britain worry about affording essentials such as food, housing and utility bills over the next six months. The charity estimates that 1.7 million older people across the UK live in poverty, equivalent to around one in seven.
With retirees' finances already under pressure, experts warn that attempts to get ahead of potential Budget changes could lead to expensive and sometimes irreversible consequences.
Don't rush to withdraw tax-free pension cash
One of the biggest concerns ahead of the Budget is speculation about changes to the amount savers can withdraw from their pensions tax-free. Under current rules, most people can take up to 25% of their pension savings tax-free, subject to a lump-sum allowance of £268,275.
The rumour, repeated over the years, is that the government might lower the tax-free pension lump-sum cap to £100,000. UK savers pulled £91bn from their pension pots before last year's Autumn Budget.
Tim Grimsditch, managing director at financial advice platform Unbiased, says: "The most expensive mistake pensioners can make before the Budget is acting on a rumour." Speculation about cuts to the 25% tax-free pension lump sum resurfaces before almost every Budget, but such cuts have never happened. "Once you take your tax-free cash, you can't put it back, and moving it into a bank account means losing the tax-free growth it could have enjoyed inside your pension."
Nouran Moustafa, of Roxton Wealth, adds: "Taking a large withdrawal can create an unnecessary income-tax bill, leave cash sitting outside a tax-efficient wrapper and, if taxable flexible income is taken, potentially trigger the £10,000 Money Purchase Annual Allowance."
Don't give away money to family in a panic
Another potential mistake is withdrawing pension savings to pass money to children or grandchildren before possible inheritance tax changes. Mark Screeton, chief executive of SunLife, says concerns about losing tax-free cash have previously prompted people to withdraw money ahead of Budgets, with some passing it on to family members.
However, gifting money does not automatically remove it from inheritance tax calculations. "Once the money leaves your pension, it may become part of your estate for inheritance tax purposes," he says. "So, a gift made in a rush can leave you short later in retirement or still be caught by inheritance tax if you die within seven years."
"The right time to help family is when it works for both of you, and a Budget rumour shouldn't be what decides it." Under current rules, gifts to individuals are generally exempt from inheritance tax if the giver survives for seven years, although annual exemptions and other reliefs may apply.
Don't rewrite your will based on rumours
Steven Butchart, solicitor at MSB Solicitors, warns: "One of the biggest mistakes people can make is changing their will or inheritance arrangements based on speculation alone. Making changes now to prepare for rules that may never come into force could result in unnecessary legal costs, additional complications for loved ones or even unintended tax consequences."
Butchart also points out that not every Budget announcement takes effect immediately. However, a significant inheritance tax reform affecting pensions is already confirmed. From April 2027, most unused pension funds and certain pension death benefits will be brought within the scope of inheritance tax.
Screeton says: "If you haven't reviewed your pension arrangements and who you've nominated to receive the benefits, now is the time to check. Life changes, and the way your nomination is set up could make a real difference to what your loved ones receive."
Don't rush into equity release
Homeowners are also being warned against releasing money tied up in their properties in response to speculation about property and inheritance taxes. Equity release allows eligible homeowners, usually older people, to access some of their property's value without moving.
However, it can reduce the value of the inheritance left to relatives and, depending on the product, allow interest to accumulate over time. "Equity release can be the right choice for many people in later life, but it is a long-term decision about your home," Screeton says. "It should be based on professional financial advice and around your personal needs and circumstances rather than speculation about what the Chancellor might announce."
Don't use pension cash to clear debts without doing the sums
SunLife's Life Well Spent report found that almost half of those over 50 have outstanding debts, with repayments averaging almost £700 a month. Although paying off expensive debt can sometimes make financial sense, Screeton says that taking a large pension withdrawal could result in an unexpected tax bill.
"Anything above your tax-free cash is taxed as income, and a large withdrawal can push you into a higher tax band for the year," he warns. Taking a substantial taxable withdrawal in a single tax year could result in higher income tax than taking smaller amounts over several years, depending on the person's circumstances.
Screeton therefore advises pensioners to calculate the full cost before accessing their savings and seek guidance if they are unsure.
Don't fall for scammers
Chris Eastwood, chief executive of workplace pension provider Penfold, says scammers may use fears about potential Budget changes to pressure people into transferring their retirement savings. "Budget time is when scammers get busy," he says. "Be careful with calls or messages out of the blue, 'free pension reviews', or pressure to move money quickly."
He advises pensioners to verify financial firms independently before making decisions. "Check that the firm is authorised on the Financial Conduct Authority register, and contact them using the details listed there, rather than those provided by the person approaching you."
Don't neglect the financial checks you can make now
Rather than attempting to predict the Budget, retirees are encouraged to focus on understanding their existing financial position. Eastwood recommends tracking down old pension pots, reviewing investments and keeping contact details up to date with pension providers.
Anthony Villis, managing partner at First Wealth, also encourages households to examine their monthly spending and check whether they could save money on regular bills. "Energy, broadband, TV, mobile and insurance: are you on the best deal available?" he says. "Loyalty is rarely rewarded automatically, so a few phone calls could make a real difference to your monthly budget."
Jennifer Crichton, associate planning director at Killik & Co, says using existing tax allowances, including ISAs, can improve tax efficiency without requiring major changes to a long-term financial plan. Amy Fry, private client tax partner at Menzies, concludes pensioners should ask themselves one question before making any major decision: "Would I still do this if there wasn't a Budget soon?" "If the answer is no, it may be better to wait for the facts rather than react to speculation."
