Autumn Budget could hit more pensions with 55% tax!

Rishi Sunak is on the prowl for more tax revenue in his Autumn Budget. Rises in stealth taxes could hit more pensions with a 55% tax charge. Here’s why.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

happy senior couple using a laptop in their living room to look at their financial budgets

Image source: Getty Images

Rishi Sunak is on the prowl for more tax revenue in his Autumn Budget. And he’s sizing up our pension pots in a way that reminds me of a heist movie. If he can raise tax revenue without us even realising it, then it could be the perfect tax raid!

Here, I take a look at why a stealth tax means that some pensions are taxed at 55%, how this rule could change and what you can do to protect your pension.


Why are some pension savings taxed at 55%?

Current lifetime allowance rules mean that the top slice of pension pots worth over £1,073,100 is taxed at 55%. It’s effectively an upper limit on the amount it’s worth saving into your pension.

It works a bit like the higher tax rate on Income Tax. Once you have drawn £1,073,100 out of your pension pot, any remaining balance is taxed at 55%

Consider this example: Denise has a pension pot worth £1,200,000. She has breached the life allowance by £126,900 (£1,200,000 minus £1,073,100). This £126,900 will incur a 55% tax charge of £69,795 (55% of £126,900) if she takes the excess as a cash lump sum. The rules are slightly different for income drawdown but will still result in a higher rate than normal.

The rules mean that you enter retirement with a lot less pension income than you planned.

A pension pot worth £1,073,100 might sound like a huge amount, but it’s not as much as it seems. A pot of that size would only buy a pension annuity of around £36,000 per year. And it would buy an even smaller annuity if you want to provide an income for a surviving spouse.

In fact, many doctors already have a pension worth well over this amount. Any extra pension they want to save might be taxed at 55%.

And Rishi Sunak could lower the lifetime allowance in his Autumn Budget so that more pension pots are taxed at 55%.

What pension changes are expected in the Autumn Budget?

According to experts, Rishi Sunak is planning to lower the lifetime allowance on pensions in the Autumn Budget. This means that more pension pots will be hit with a 55% tax charge.

If he lowers the lifetime allowance to £800,000 or 900,000, then more pensioners will be affected by the lifetime allowance rules.


What can you do to protect your pension?

If you’re nearing retirement and you have a sizeable pension pot, then it’s a good idea to get financial advice from a qualified independent financial advisor. They will be able to advise you on where to invest, whether to buy an annuity or whether to do income drawdown with your pension.

If the rules change in the Autumn Budget, then more people than ever will be at risk of breaching the lifetime allowance. If this applies to you, then it’s likely to affect your pension planning.

You may be able to apply to protect your lifetime allowance and reduce your tax charge. Or it may be more tax-efficient for you to save in a stocks and shares ISA rather than a pension scheme. It’s a good idea to take financial advice as the rules are complicated and everyone’s financial circumstances are different.

Please note that tax treatment depends on your individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »