With the 2024 budget, we wanted to discuss the changes with regards to the pensions. Beforehand there are always rumours of what will change over the few months, but most have been unfounded, it could have been a lot worse.

With the main fears being 25% ‘tax free’ allowance from a pension would be reduced or capped and a less attractive ‘tax relief’ on your pension contributions would be applied did not materialise.

A pension remains one of the only savings options where the government tops up your contribution at either 20, 40 or 45%. In effect you gain ‘free money’ from the government. Taking advantage of this makes even more financial sense and is good planning. The other area

that was suggested for change was around how beneficiary can inherit’ a pension, and this is where we have change.

From 6 April 2027 most pension funds will fall into the estate for inheritance tax (IHT) purposes. This includes funds paid out as a lump sum and those paid as a beneficiary drawdown or an annuity. Scheme pensions and funds paid as charity lump sum death benefits will be exempt. Most funds are outside of the estate as they are paid at the discretion of the pension scheme.

With the new rules this removes the distinction between discretionary and nondiscretionary payments and the value of all benefits will fall into the estate. The government, explained the changes state that IHT will be payable on the value of the gross funds in the pension immediately before death, but before being distributed or designated to the beneficiary. The process will require the personal representative and the pension scheme administrator/trustee having to work together to establish the IHT charge and the proportion of the charge the scheme must pay.

The spousal exemption will still apply in the normal way and so any funds passed to a spouse or civil partner will remain free of IHT on first death.

I have highlighted this last point as I feel that it is extremely important as it wasn’t really emphasised during the budget and should not be ignored. In short, on this basis you still have 2 lifespans to ‘use’ your pension fund before IHT would be payable from it.

It is also important to stress that although passing onto wider family was very appealing, we shouldn’t lose sight of the fact that a pension is to primarily provide you (and possibly spouse) with income and a comfortable retirement.

Also remember that a possible IHT charge on a pension only applies if your estate value is over £325,000 (£500,000 if you pass on your home to family) for an individual, or £650,000/£1,000,000 respectively for a couple.

The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested. Transferring out of a final salary pension is unlikely to be in the best interest of most people.