What a Labour budget could mean for your pension fund

There has been a great deal of speculation that the tax-free status of the ‘Pension Commencement Lump Sum’ (previously known as ‘Tax-Free Cash’) could be under threat. Many investors fear that this benefit might be removed or altered under a Labour budget.

However, it is important to note that any changes are unlikely to be applied retrospectively. This means that funds accumulated before any rule change should retain their current tax-free status. If you’re concerned about this potential shift, consider the following steps:

• Speak to a financial adviser

Consulting with a professional can help you understand the potential impact of any changes and develop a strategy to safeguard your assets.

• Consider funding your Pension before the Budget

If you’re worried about changes to the tax-free status, it may be wise to make additional contributions to your pension before the budget announcement. This could allow you to take advantage of the current rules, which are unlikely to be applied retrospectively.

• Review your strategy if you’ve recently turned 75

If you have recently reached the age of 75, you should be aware that any funds left in a pension fund upon death are now taxable. If you haven’t yet withdrawn your Pension Commencement Lump Sum (PCLS), consider revisiting your retirement strategy with an adviser to optimise your tax situation.

Another potential change that has been discussed is the withdrawal of higher rate tax relief on pension contributions. While this idea has been floated for some time, it’s uncertain whether it will actually come to pass. In practice, such a change might not significantly affect business owners who could still benefit fully from company pension contributions.

For those who are concerned about this possibility, here are some proactive steps to consider:

• Consult a financial adviser

I will keep repeating this, professional guidance can help you with the potential impact of any changes and ensure you’re making the most of your pension contributions.

• Make additional Pension contributions before the budget

Similar to the advice regarding the tax-free status, consider making further contributions to your pension fund before the budget is announced. This allows you to maximise the benefits under the current rules.

There is also speculation that pensions could become taxable on death, regardless of the age at which the individual dies, or could be included as part of one’s estate. While this change has not been confirmed, it is a possibility within the upcoming budget announcements.

If this potential change is a concern for you, consider taking the following steps:

• Seek professional advice

A financial adviser can provide guidance on how best to prepare for this potential change and help you ensure your affairs are in order.

• Ensure your affairs are in order

Preparing for the worst-case scenario is usually sensible. Make sure you have a will drafted, pension nominations in place, and any other estate planning measures completed.

• Consider your retirement needs and cash flow planning

Understanding how much you need for retirement is a critical part of our advice. Engaging in a cashflow planning exercise can give you the confidence to spend more freely, to enjoy your retirement and make memories, rather than focusing solely on preserving wealth for inheritance.

While there is much uncertainty surrounding the potential changes the Labour budget might bring, being proactive and prepared can help mitigate the impact of any adverse changes on your pension fund. Speaking to a financial adviser, considering making additional contributions, and ensuring your estate planning is in order are all steps that can provide peace of mind and financial security. Whatever the future holds, staying informed and prepared will always be your best defense.

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