Pension Awareness Day: the three questions on everyone’s mind this year

Pension Awareness Day is a good moment to step back and look at the bigger picture, and in the last year, I’ve noticed three questions come up again and again in client meetings – I thought I’d share them and explain why each of these areas are worth a closer look.

1. How will the Inheritance Tax changes affect my pension?

This is the question I hear most at the moment. From 6 April 2027, most unused pension funds will be included when assessing the value of an estate for Inheritance Tax (IHT) purposes. Since 2015, pension assets have generally been considered separately from other estate planning considerations, so this change is prompting many people to revisit how their retirement savings fit into their wider financial plans.

The concern is cost. Inheritance Tax is charged at 40% above your available allowances (remembering the IHT exemption will remain for spouses and civil partners), and where a pension is passed on after age 75, your beneficiaries may also pay Income Tax on what they draw. Put those together and the effective cost of leaving a large pot untouched can be very high indeed.

This is prompting more clients to look again at annuities. An annuity converts your pension into a guaranteed income for life, and because you’ve essentially exchanged the pot for that income, it sits outside your estate. Consequently, for some people, it’s a far more efficient route, although this needs to be balanced against the loss of flexibility and access to capital.

The trade-off is a balancing act. An annuity is, in a sense, a gamble on how long you live: live well beyond your life expectancy and it can pay off handsomely; die earlier than expected and the insurer keeps more of the money. It won’t suit everyone, but it definitely deserves a fresh look.

2. Will I still save National Insurance on my pension contributions?

If your contributions are paid straight into your pension through salary sacrifice, you don’t pay National Insurance (NI) on that amount, and the larger the contribution, the larger the saving. It’s one of the quieter advantages of paying in this way.

The uncertainty is over what happens next. While there’s growing speculation that National Insurance relief on pension contributions could be scaled back further for larger contributions, some changes have already been confirmed. The Government has legislated for a £2,000 annual cap on the NI exemption available through pension salary sacrifice arrangements from 6 April 2029, under the National Insurance Contributions (Employer Pensions Contributions) Act 2026. You will retain tax relief at your highest marginal rate for all contributions, but become subject to employer and employee National Insurance contributions in excess of the cap. Nothing beyond this has been confirmed, but further reform has been widely discussed and is something we’re watching closely. If you’re making sizeable contributions, it’s worth understanding how any changes could affect you before they happen, rather than after.

3. Could the rising retirement age leave me unable to access my money?

The third question is one I describe as ‘a hot topic for anyone nearing retirement’. From 6 April 2028, the minimum age at which you can access your pension is scheduled to rise from 55 to 57.

The complication is that not every pension scheme will be affected in the same way. Some may retain the right to access their pension from age 55, depending on the specific terms of their scheme and how those rights are interpreted, while others will need to wait until 57. If you’re planning to retire around that transition period, it’s important to understand which rules apply to you. A two-year difference in pension access could have a significant impact on your retirement plans, leaving you in a ‘frozen patch’ of a year or two where you simply can’t get to your money.

My advice is to check well ahead of time – don’t assume. Review your individual scheme with an adviser and find out exactly when you can access your benefits. Some people have what is called a ‘protected retirement age’ (which lets them take benefits earlier), but you need to know whether that applies to you. The last thing anyone wants is to build their retirement plan around a date that is no longer feasible.

Making the most of Pension Awareness Day

If there’s one message for Pension Awareness Day, it’s this: the rules are changing, and the right decision depends entirely on your own circumstances. Being forewarned is being forearmed.

Knowing what may be coming gives you time to prepare and avoid being caught out by changes that could affect your retirement plans. A conversation now could save a great deal of cost and worry later.

To talk through any of these questions with a Mattioli Woods adviser, please get in touch with the team.