The Autumn Budget signalled a major shift in how pensions and other tax-advantaged savings will be treated over the coming years.
Changes to salary sacrifice rules, adjustments to ISA allowances and a renewed focus on unspent pensions are reshaping the landscape for anyone trying to save or pass on wealth efficiently.
For higher earners, business owners and savers, understanding these reforms early will be essential.
Salary sacrifice facing new restrictions
Salary sacrifice has been one of the most reliable tools for building a pension tax efficiently.
However, from April 2029, its advantages will narrow. National Insurance contributions will apply to employer and employee pension payments made through salary sacrifice once they exceed £2,000 a year.
The first £2,000 will still benefit from the existing relief, but contributions above this level will be treated like standard earnings for NIC purposes.
This change is likely to have the greatest impact on higher earners and those using generous sacrifice arrangements. Employers may also need to rethink how they design reward packages, given the reduced NIC savings.
ISA changes and their effect on retirement planning
The upcoming ISA reforms will subtly shift saving behaviours. From April 2027, the yearly cash ISA limit will fall to £12,000, while the overall ISA allowance stays at £20,000.
To maximise the full allowance, savers will therefore need to invest up to £8,000 into stocks and shares ISAs.
This places greater emphasis on pensions as a stable savings vehicle, particularly as salary sacrifice becomes less advantageous.
Unspent pensions to fall within Inheritance Tax from 2027
Pensions have traditionally been viewed as a tax-efficient way to pass wealth between generations, largely because unspent pension pots usually fall outside the scope of Inheritance Tax.
That position is now changing.
From 2027, unspent defined contribution pensions will begin to form part of the taxable estate.
Combined with the freeze on IHT thresholds until 2031, many more estates may find themselves liable for IHT, even where individuals had planned to leave their pensions untouched.
This shift means savers will need to think more carefully about the size of their pension pot, how they intend to draw from it and how it fits into their wider estate planning strategy.
Planning ahead in a more complex system
These reforms all point in the same direction: traditional tax-efficient saving methods are tightening and proactive planning is becoming increasingly important.
Key actions to consider include:
If you would like to explore how these reforms may affect your retirement or estate plans, our tax team can help you assess your options and plan with confidence.
