Article last updated 17 October 2025.
What’s in the news?
Retirement should be about enjoyment, not concerns about how the Budget might affect it.
You’ve worked hard all your life looking forward to the day the alarm doesn’t go off at 6am and you don’t have squeeze onto a packed commuter train. Diligently saving and thinking about buying that cosy cottage in your rural idyll of choice.
Each year, talk surrounding the Budget seems to get louder and louder. Budget speculation is rife, so we’re looking at possible changes and how these could affect you should they be announced.
What does a good retirement look like?
The real question is, what does a good retirement look like for you? Take away the Budget talk for a moment and reflect on that. Is it travelling, hobbies, moving home, spending more time with friends or family, or helping your loved ones out financially? The Budget matters, but the focus should always be on having a financial plan for meeting your goals, that’s resilient enough to withstand all the bumps in the road.
So, with that in mind, let’s look at some options in front of the Chancellor and how they might affect you if you’re thinking about retirement or already retired.
Changes to pension tax-free cash
Getting the most airtime (and column inches) at the moment is speculation about reducing or abolishing pension tax-free cash. It’s probably the best-known feature of a pension. You can ordinarily take up to 25% of your pension in a tax-free lump sum, to a maximum value of £268,275, from age 55 (age 57 from April 2028).
“I’ve been in this industry for over 20 years and rumours about the reduction or removal of pension tax-free cash have cropped up every single year,” says Rebecca Williams, Financial Planning Divisional Lead at Rathbones. “The government's public approval ratings are in freefall, so we anticipate the Treasury will be cautious about reducing or eliminating the right to tax-free cash, which would be a hugely unpopular move. It wouldn’t raise any immediate tax revenue anyway.”
If you’re already retired or close to it, changes to tax-free cash could have a big impact on plans to repay mortgages or splash out on big-ticket items like that once-in-a-lifetime holiday or much-needed new car. However, in the past changes generally aren’t made without a grace period of transitional protection for those in or close to retirement. We think tax-free cash is unlikely to be scrapped altogether, but the cap could be lower for people retiring in the future.
There’s no need for worry, but if you already have a good reason to take your tax-free lump sum it may be worth considering doing this before the Budget. We recommend talking to your financial planner first.
Changes to pension tax relief
The other big topic of conversation is about a possible change to a flat rate of tax relief on pension contributions.
At the moment, the money you pay into your pension is topped up by HMRC, in the form of tax relief at your marginal rate (20%, 40%, or 45%). It means that if you’re paying tax at the basic rate of 20%, for every £80 paid into your personal pension, you get £20 tax relief added automatically. That comes to £100 in your pension pot. If you’re a higher or additional rate taxpayer, you can reclaim extra tax through self-assessment.
Tax relief is thought to cost the Government £47bn each year, so reducing it to a flat rate or removing it completely could be an option for Chancellor Rachel Reeves to consider.
If you’re nearing retirement and contributing as much as you can to boost your pot, this could impact you. A change might mean you could lose out, especially if you’re a higher or additional rate taxpayer. This would certainly make pensions less attractive savings vehicles. But we shouldn’t lose sight of the fact that pensions are still amazingly tax-efficient – even if there’s less tax relief in the future. Because money in your pension grows free of tax, over the long term that makes a significant difference to the size of your fund.
If you are making contributions to your pension, especially as a higher rate taxpayer and even more as an additional rate taxpayer, consider making a bigger personal contribution before the Budget. Talk to your financial planner about how much is appropriate.
Unspent pension funds
This isn’t a rumour this year, but it’s worth highlighting. Last year’s Budget announced that any pension funds unused on death would be subject to inheritance tax from April 2027.
We can’t ignore this in conversations we’re having with clients. The focus of planning since 2015 had been to spend your pension last because it was exempt from inheritance tax – this has now been upended. It doesn’t mean your goals should change. But it might mean the financial plan showing how you can achieve them needs reviewing.
Now may be a good time to start thinking about how to use the money in your pension to take that tropical getaway of your dreams or make a gift to your loved ones. Have a conversation with your financial planner – early planning is crucial.
What should you do?
Stay calm.
Budget speculation remains Budget speculation until any official announcements are made. Stay focused on your financial goals and work with your financial planner to create a financial plan so solid that no Budget changes will derail it.
If you have any questions or concerns ahead of the Budget, please get in touch with your Rathbones contact or visit www.rathbones.com/contact to find out how we can help.
This information is based on our current understanding of HMRC tax regulations in the UK. Tax treatment depends on your individual circumstances and may be subject to change in future.
