Budget 2024: All the major pension changes that could affect your retirement plans

Rachel Reeves could be set to announce major changes that affect your pension as part of her Autumn Budget.

The Chancellor is said to be considering a shake-up to the way workplace and private pensions are taxed, to help fill what Labour describes as a £22billion “black hole” left by the Conservatives. These changes would not just affect those who are already at retirement age – it would also impact those who are still working and saving for their pension.

Separately, the Chancellor is also expected to confirm how much the state pension will rise by next April. Here are the latest rumours and what the Chancellor could announce tomorrow.

National Insurance on pension contributions

Employers do not have to pay National Insurance on pension contributions – but there are reports suggesting the Chancellor could change this. While this would not directly impact your pay packet, experts suggest this could put off firms from offering higher pension contributions beyond auto-enrolment minimums.

The minimum auto enrolment contribution to an employee’s pension savings is 8% of qualifying earnings. Employers must pay at least 3% and the employee the remaining 5% – but some choose to pay in more than this. Experts also suggest employers may look to claw back costs with smaller wage rises or hiring freezes.

‘Death tax’ on pension savings

Under current rules, if you die before the age of 75, the person inheriting your pension will not have to pay tax on your retirement savings. If you die after the age of 75, those who inherit your pension will pay Income Tax when they draw from it, as it will be treated as income.

You don’t pay Inheritance Tax on pension savings, but some think tanks have urged the Chancellor to change the rules so that pensions are included in the “estate” of someone when they die. It is unclear if the Chancellor will follow through with these changes in her Budget.

Changes to tax-free lump sum

Rachel Reeves was reported to be considering a cut to the tax-free lump sum you can take from your pension. Under current rules, the amount you can take as a tax-free lump sum when you turn 55 is capped at £268,275.

The Treasury was said to have looked at cutting this to just £100,000. The current £268,275 figure is equivalent to 25% of the £1.073million lifetime allowance, which was scrapped by the Tories in April 2024. This used to be the maximum someone could build up in their pensions without paying extra tax.

Single rate of pension tax relief

Earlier reports claimed the Chancellor was considering introducing a single rate of pension tax relief – but newer speculation suggests the Treasury has now ruled this out. Under current rules, savers get pension tax relief at their Income Tax rate. This means basic rate taxpayers receive relief at 20% – so for every pension contribution of £80, they get £20 tax relief top-up from the Government.

The relief for higher rate taxpayers is 40% and additional rate taxpayers is 45%. It had been suggested that the Chancellor was looking into introducing a single rate of 30%. This would mean higher earners get less pensions tax relief than what they do now, and critics say this would risk angering public sector workers including NHS staff.

State pension rise to be confirmed

The Chancellor is expected to confirm the state pension will rise by 4.1% next April. The state pension rises every year under the triple lock guarantee. This ensures the state pension increases by the highest out of inflation (using the previous September inflation figure), wages (average growth between May and July) or 2.5% – whichever is highest.

Wage growth was this month revised to 4.1% and as this is higher than inflation, which has fallen to 1.7%, this is likely going to be the measure used for state pension increases. The full new state pension is worth £221.20 a week, or £11,502 a year, and will rise to £230.30 a week, or £11,975 a year, under a 4.1% increase.

The full basic state pension is worth £169.50 a week, or £8,814 a year, but this would rise to £176.45 a week, or £9,175 a year, under a 4.1% increase. How much you get in state pension depends on your National Insurance record – these are the full amounts that you can get. The Chancellor will confirm the new rates in her speech.