Despite numerous rumours of possible changes to the taxation of pensions in the run up to the budget, the Chancellor decided not to make significant changes after all. The ability to receive a 25% tax-free lump sum of up to £268,275 (or higher in some cases) remains.

Individual contributions continue to attract income tax relief at the individual’s marginal tax rate and can be particularly effective where net income is between £100,000 and £125,140, where the personal allowance is tapered.

Employer pension contributions continue to qualify for a deduction against business profits and the rumour that employers’ national insurance would be imposed on pension contributions did not materialise. Note that the £60,000 annual allowance limit continues for 2025/26 and applies to the combined individual and employer contributions.

One change that was however announced was to make an individual’s undrawn pension fund subject to inheritance tax. From 6 April 2027, it is proposed that most undrawn pension funds and death benefits be included within the value of a person’s estate for inheritance tax purposes and for pension scheme administrators to become liable for reporting and paying any inheritance tax due on pensions to HMRC.