Chancellor Jeremy Hunt promised to ‘reduce debt, cut taxes and reward work’ in his ‘Autumn Statement for growth’, but what might the changes he announced mean for your personal finances?

In the lead up to the Autumn Statement, we discussed the changes that were rumoured to have been announced in this article.

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These speculated changes included:

• Reducing Inheritance tax
• Announcing an additional ISA allowance for investment into UK companies
• Changing the state pension triple lock calculation to limit next year’s state pension increase

In the end, none of these changes were introduced, with shadow chancellor Rachel Reeves claiming Hunt wanted to reduce inheritance tax but that he “couldn’t get away with it in the middle of a cost of living crisis”.  Instead, the headline grabbing change was the 2% reduction to employee national insurance contributions between £12,571 and £50,271.  This will equate to an annual saving of c. £754 p.a. to those earning over £50,270 p.a. with effect from January 2024.  Additionally, there were National Insurance reductions for the self-employed, with Class 2 contributions effectively abolished and Class 4 contributions reduced from 9% to 8% between £12,571 and £50,271 with effect from April 2024.

However, this will only go part of the way to make up for the impact of the continued freezing of the income tax bands, which will remain frozen until 2028.  Indeed, as a result of higher inflation, higher interest rates and frozen tax bands, the Office for Budget Responsibility (OBR) states “Living standards, as measured by real household disposable income per person, are forecast to be 3.5 per cent lower in 2024-25 than their pre-pandemic level.” 

Separately, the speculated ISA allowance increase for investments into UK companies did not materialise and pensioners will be pleased to hear Mr Hunt state the government will “honour our commitment in full” as the state pension rises by 8.5% next year.

Regarding pensions, workers will hope a new legal right for their new employer to pay into their previous defined contribution pension scheme will simplify pension planning going forward and will mean an end to the accumulation of multiple schemes as individuals move between companies.

This was an Autumn Statement with half an eye on an upcoming general election, with announcements that should put more money in the pockets of workers and pensioners alike. Mr Hunt repeatedly referred to the OBR’s forecasts during his announcement as he tried to rebuild credibility, a little over a year after Liz Truss and Kwasi Kwarteng’s ‘mini-budget’, prior to which the OBR was not asked to run forecasts. Overall, Mr Hunt will have been grateful that he was able to use some of the fiscal headroom provided by then Chancellor, now Prime Minister, Rishi Sunak’s decision to freeze income tax bands back in 2021 to offer a national insurance cut and significant state pension rise to the voting public. 

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The opinions shared in this article are solely those of the individual and they do not necessarily reflect those of The Private Office.  

A partner passing away is, of course, a distressing situation that leaves many wondering how they will cope. As well as the emotional difficulties you face in this situation, you may also be asking how you will be able to support yourself financially. You can find some comfort in the fact that you may be eligible for bereavement support, sometimes known as a widow’s pension, which could be valuable if you were financially dependent on your deceased partner.  

This, of course, brings up all sorts of questions, including “who qualifies for a widow’s pension?” and “how much is a widow’s state pension?”. Here we look to answer some of these questions so you know whether you are eligible, how much you could receive, and for how long? 

What is a widow's pension?  

The term widow’s pension is slightly outdated, as the benefit referred to as the “widow’s pension” was phased out in April 2001 and replaced by Bereavement Support Payments (BSP). However, you might still hear people using the old term to refer to this. BSP is financial support that you receive after the passing of a partner. 

It is also important not to confuse Bereavement Support Payment with Widowed Parent’s Allowance. Widowed Parent’s Allowance is a separate bereavement benefit for people whose partner died before 6 April 2017 and who were responsible for a child or young person. The amount someone receives is based on their late partner’s National Insurance contributions. Widowed Parent’s Allowance has now largely been replaced by BSP, although some people may still receive it, and new claims may only be possible in limited circumstances where a partner died before 6 April 2017. 

The original widow’s pension was available until the widow turned 65, or they remarried or retired. This is a key difference with the modern BSP which is only payable up to 21 months after your partner passes away, or until you reach state pension age.  

In addition to the difference in length of payment, BSP is available to all widowed partners (whether married or in civil partnerships), regardless of their gender. Crucially, following a successful debate in the House of Commons in February 2023, this payment by law can now extend to those who were living together, but were not married or civil partners. This previously restricted a large number of couples, but the modernisation of this scheme is welcome and is expected to open the payment up to around 21,000 families to claim.

How much is a widow's pension? 

In order to qualify for a Widow’s Pension your partner must have paid National Insurance contributions, or their death must have been related to their job.

Bereavement support payment is paid in monthly instalments, and the amount that you receive will depend on whether you have children or not. Those without children will receive up to £100 every month, whereas this amount can increase to £350 if you have children. This lasts for 18 months.

In addition to the regular widow’s pension, you may also be eligible for a one-off Bereavement Support Payment. This is usually a tax-free lump sum of £2500 but increases to £3500 if you have children. 

You do not need to worry about tax with this payment; UK regulations dictate that this support is tax free, while it’s also important to note that it’s not included in the benefit cap. This means that you don’t need to take this into account when you’re applying for any other means-tested benefits. If you get benefits, BSP will not affect your benefits for a year after your first payment. After a year, money you have left from your first payment could affect the amount you get if you renew or make a claim for another benefit. 

You must tell your benefits office (for example, your local Jobcentre Plus) when you start getting BSP. 

Am I eligible to claim Bereavement Support Payment?

You do not need to be over a certain age to receive Bereavement Support Payments. However, payments cease once you are over state pension age.
To qualify:

• You must be below the state pension age when your partner passed away and living in the UK or another country that pays bereavement support.
• Your partner paid National Insurance contributions for a minimum of 25 weeks within one tax year since April 1975 or died under circumstances relating to their work.
• Your partner must have passed away within the last 21 months. If you do not claim within the first 3 months after their death, then you will not be eligible to receive the full amount.

As it currently stands, Bereavement Support Payments are not means-tested, so if you’re wondering “how much is a widow’s state pension?”, then this only depends on whether you have children or not. You’ll be eligible for the higher rate if you have children that you support.

When should I apply for Bereavement Support Payment?

If your partner died after April 2017, then Bereavement Support Payment is paid for up to 18 months after your spouse or civil partner passed away, so it’s important that you claim as soon as possible to avoid missing out. You must claim within 3 months of your partner passing away to receive the full 18 payments.

How to claim Bereavement Support Payment

To apply for Bereavement Support Payment, you can do so through the UK Government website, by telephone, or via post. You may need to provide details such as your partner’s National Insurance number, proof of death, and bank account information to process the claim.

Can a widow claim pension credit?   

Pension Credit is a government initiative that is designed to provide elderly people on a lower income with extra money to cover living costs. To qualify for pension credit, you will be means tested and you must be over the state pension age. In addition, you can get assistance with housing costs such as ground rent and service fees. It’s something that you should factor into your long-term care planning for older age, as it can provide important help to lower income retirees.  

Widows are eligible to claim pension credit just like anyone else. Eligibility is based on your age and income, and you may also receive additional support if you are a carer, have a disability or are responsible for a young person. Widow’s pension and bereavement support have no effect on your ability to apply for pension credit. If you get benefits, Bereavement Support Payments will not affect your benefits for a year after your first payment. After a year, money you have left from your first payment could affect the amount you get if you renew or make a claim for another benefit. 

So, in summary, a widow’s pension does not actually exist in the UK anymore but has been replaced by Bereavement Support Payments. However, you might find people still call these payments a ‘widow’s pension’. These payments are made in monthly instalments. Widowed Parent’s Allowance is separate from Bereavement Support Payment, and although it has also been replaced for most new claims, some existing claimants may still receive it.

Finally, receiving Bereavement Support Payments does not affect your eligibility for pension credit. In fact, the two are mutually exclusive, since only those above pension age can claim pension credit, and only those below pension age can claim Bereavement Support Payments.  

If you think you might be eligible for a widow’s pension, but aren’t entirely sure, it may be a good idea to speak to a financial adviser. The Private Office can help you understand your options for retirement and provide you with pension advice that is suited to your individual needs and circumstances. Contact us today to see if we can help.  Or why not see how we’ve helped clients following a bereavement. 

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Pensions are a long-term investment; investment returns are not guaranteed, the value of your investments can go down as well as up and you may get back less than you originally invested. 

The information provided in this article is based on the current allowances and legislation and is subject to change.

The Financial Conduct Authority (FCA) does not regulate tax advice.

It is fair to say, the last seven years or so have brought multiple periods of market uncertainty. It feels relevant to reference 2018, the year of Trump vs China’s trade war which has once again reared its ugly head in 2025 with Trump’s ‘liberation day’ and the uncertainty that has brought to investment markets. Outside of these events we have had a pandemic, multiple geo-political conflicts, and a lengthy period of increased inflation whereby central banks around the world had no choice but to raise interest rates in an attempt to curb and reduce inflation over time. In some regions the rhetoric had been ‘higher interest rates for longer.

With the above in mind, it feels more important than ever for clients to have an understanding of the financial track they are on and where this is headed. Our existing clients will know that what serves as the foundation of this understanding is cash flow forecasting. This is such an essential tool in ensuring your wealth is segmented in such a way that enables you to make sure that the risk associated with investment markets can be managed as best as possible. 

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Have your retirement plans been derailed?

For those not fortunate enough to have a guaranteed, and usually inflation linked, retirement income provided by a generous Final Salary pension scheme, many prospective UK retirees are reliant on Defined Contribution (sometimes called Money Purchase) pension plans to provide for them when they stop working. 

Unlike old-style Final Salary schemes, where all of the investment risk is borne by the former employer, Defined Contribution pensions are invested on an individual basis into global stock markets. Plan holders are then reliant on a combination of long term market returns and the wonders of compound growth to increase their retirement pot to a value that will allow them to achieve their desired level of expenditure in retirement. 

Thanks to auto-enrolment rules introduced by the Government in 2012, many people’s retirement funds have accrued without them so much as opening an account. Clearly, some people have a far greater interest in managing their pension’s underlying investments than others, with the rise of online DIY platforms this has made it easier to do than ever, with many platforms offering unlimited trades and special offers on new fund launches.

For those less interested in becoming the next Warren Buffett, your pension provider may have kindly sorted this all for you! The vast majority of workplace pension schemes are invested in a “lifestyling” strategy as default. This aims to put scheme members into riskier assets, like equities earlier in their careers to benefit from the greater levels of return that they have experienced historically. As a member moves closer to their nominated retirement age, the pension provider automatically reduces the level of riskier assets in the plan in favour of more conservative alternatives. The result is that the pension should be sat in one of the safest asset classes – usually government bonds or sometimes cash at their chosen retirement date, ready for the member to access their funds without being subject to the whims of market volatility. 

How does lifestyling work?

Sounds great, right? How good of your pension provider, looking after that pot from that job in your twenties for all those years. If you’re beginning to get the sense that all of this sounds a little too good to be true, then that’s because it sort of is!

“Lifestyling” funds are fundamentally flawed for a number of reasons:

The first, is that the above strategy only works if the assets assumed to be risk free, actually are. The 2022 “Mini Budget” from Liz Truss and Kwasi Kwarteng brought it sharply into focus that bonds are not a risk-free asset. Some difficult conversations had to be had for individuals whose pensions had mostly lifestyled into bonds and cash and had thought because of this their pensions were secure. It even caused some to reconsider their retirement plans and put them off for a couple of years.

Another issue with lifestyling is that your workplace pension providers are understandably following the same glide path for everyone. Retirement planning is much more nuanced than this but workplace pension providers such as Royal London, Scottish Widows, Aviva, Aegon etc do not have the capacity to speak to each of their customers and understand what they actually need their pension pots to do for them over the long-term, from an income and lifestyle perspective.

The last issue we would like to highlight with lifestyling, is that the notion of having a pension entirely de-risked ready for the day you retire only makes sense if you are planning to use the whole pot to purchase an annuity. Due to rises in bond yields, annuity rates increased steadily from 2022 to the extent that they now present an option worth considering for certain retirees, for the first time in many years.

With this being said, annuities are by no means right for everyone. For many people, drawing upon their pension pot(s) flexibly, either through regular income payments or ad hoc withdrawals, will be the way in which they access their retirement funds. 

The ONS estimates that someone at the average retirement age of 65 in the UK in 2025 can expect to live to on average a further 20 years for men on average, and 23 years for women.

This means two things; firstly that there is good chance that your pension will need to last you at least 20 years, but potentially much longer; and secondly, and related to the previous point - some of your pension may not be touched for another 20 years. Therefore, this element of your pot should not take the same level of risk and have the same investment strategy as the money you will be drawing upon in the first few years of retirement, which should be sat in cash ready for you to access.

Segmenting your pension into different pots: the three pot plan

This is by no means anything ground-breaking; by segmenting your pension across different strategies, you are simply taking advantage of timescales. This means that your longest term money can work harder for you, but that the money you need to fund the next few years of living is sat in cash, taking no investment risk. 

It may not always be the case that individuals hold significant levels of cash personally, in bank or building society savings or national savings and investment accounts. Nevertheless, holding cash for short-term income requirements can still be achieved. How? By holding a modern Self-Invested Personal Pension (SIPP) which can hold some of its investments in cash accounts or Money Market portfolios. 

By holding a few years’ worth of expenditure in cash you give yourself time to ride out any of the shorter-term volatility in markets, meaning you are never forced to sell down upon your invested wealth at an inopportune time in market cycles in order to fund your day-to-day expenditure needs. Luckily, with interest rates still relatively high, the returns from holding cash are far better than anything we saw for many years. 

As the above illustrates, planning appropriately is vital in ensuring sustainability throughout what will hopefully be a long and enjoyable retirement. Making sure that a robust retirement strategy is in place well in advance of actually retiring will allow your money to work as hard as possible for you, whilst also ensuring that you can continue to live your dream retirement without the need to worry about the ups and downs in markets.

Retirement Calculator

A useful tool to get a basic understanding of how much you may need is our retirement calculator. From your own inputs, you will be able to forecast an estimate of the pension income you will get when you retire and receive a target retirement income to aim for based on your choices. 

How can we help?

The above is purely an example of a tool we always use with our clients, cash flow modelling. This is especially useful to both us and our clients at determining what they need their assets to do for them over the long-term and identify the different time horizons ahead of them before accessing certain proportions of their wealth.

If you’d like to learn more about how you can plan your own comfortable retirement, why not get in touch and speak to one of our advisers. We’re currently offering anyone with £100,000 in pensions, savings or investments a free initial consultation worth £500.

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The information in this article is based on current laws and regulations which are subject to change as at future legislations.

A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. 

The Financial Conduct Authority (FCA) do not regulate estate or cash flow planning, or tax advice.

Pensions, like most forms of income, incur taxes. However, there are ways to ensure you’re not unnecessarily overpaying in tax, even when you’ve retired.

Do you pay tax on your pension?

The short answer to this question is yes, so long as your pension exceeds the minimum threshold for paying income tax.

Income from a pension is taxed exactly like any other form of non-savings income. Firstly, everyone has a personal allowance, which is the amount of money you’re allowed to earn each year before you start paying income tax. Currently, the personal allowance is £12,570 (though this may be reduced if you have earnings above a certain level), so if you receive less than £12,570 per annum of taxable income, then you pay no income tax. Once your taxable income goes above this level you become liable to pay 20% income tax on taxable income between £12,571 and £50,270 per annum. This then increases to 40% income tax for taxable income between £50,271 and £125,140, and 45% beyond that. These income tax rates are valid as of 2025. For updated and current tax rates, see our latest tax tables. 

It’s worth noting however, under certain circumstances, you do not need to pay tax on all of your pension income. Additionally, there are strategies you can adopt to minimise the amount of tax you pay on your pension. 

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How much will I be taxed on my pension?

Another frequently asked question is “how much tax do you pay on your pension?”. As stated above, the amount of income tax you pay on your pension depends how much income you draw from your pension.

The good news, is that some of your pension is, in fact, tax free. If you have a defined contribution pension, whereby your pension is based on how much you and/or your employer have saved into it — which is the most common kind — then you can take out 25% of your pension completely tax-free, subject to a max of £268,275, this is known as the Lump Sum Allowance (LSA).

It is important to understand that, although possible, this does not need to be taken out as one single lump sum. It is possible to take out multiple smaller lump sums each with 25% tax-free, or just take portions of tax-free cash over time rather than all at once (known as phasing), as long as your pension allows for ‘flexi-access drawdown’. The remaining 75% will be taxed according to the standard rules explained above.

If you are only receiving the new state pension, on the other hand, then you do not need to worry about income tax. As of 6th April 2024, the full new state pension is £230.25 per week, or £11,973 per year  — since this amount is within your personal allowance there will be no income tax to pay. Most people who have worked throughout their lifetime will be eligible for a state pension, although the amount you receive will depend on your national insurance record.

However, if you have income from other sources bringing your yearly income higher than £12,570, then you may be expected to pay income tax.

What other forms of tax for my pension should I be aware of?

Income tax is the main tax you can expect to pay on your pension. Previously the lifetime allowance, stood at £1,073,100 and additional tax may have been due if your pension exceeded this limit. However, in the Spring Budget 2023 it was announced that the charge and the lifetime allowance itself would be removed entirely as of the 2024/25 tax year, while a 0% charge would apply to any excess pension above the lifetime allowance in the 2023/24 tax year. There is, naturally, political risk of legislation changing with regard to this tax charge.

The lifetime allowance has now been replaced by the Lump sum Allowance  (LSA) and the Lump Sum and Death Benefit Allowance (LSDBA).

How much can a pensioner earn before paying tax?  

A pensioner can earn up to the personal allowance before having to pay any income tax, which, as mentioned above, is currently £12,570 for the 2025/26 tax year. This personal allowance is the same for everyone regardless of whether you are retired or still working. Your taxable income from a pension, along with any other income you may have, is added together to determine how much tax you will pay. If your total income for the year is less than or equal to the personal allowance, you will not have to pay any income tax on it. 

How do I drawdown on pension without paying tax?  

While you cannot fully drawdown on your entire pension without paying tax, as we've mentioned there is a portion that is completely tax free. You are entitled to take up to 25 per cent of your pension pot as a tax free lump sum, subject to a maximum of £268,275, which is called your tax free cash or pension commencement lump sum. The remaining 75 per cent will then be taxed as an income. Of course, the benefit is you do not have to take all of your tax free cash in one go; you can take it in stages and combine it with taxable withdrawals to manage your income and stay within a lower tax band.  

How do I avoid tax on an inherited pension lump sum?  

Avoiding tax on an inherited pension lump sum depends on the age of the person who has passed away. If the pension holder was under the age of 75 when they died, a beneficiary can inherit the entire pension pot as a tax free lump sum. However, if the pension holder was 75 or older when they died, any inherited lump sum will be taxed at the beneficiary’s marginal rate of income tax.  

These rules are changing, however. From April 2027 pensions will form part of a person's estate for inheritance tax purposes, regardless of your age.  

This is a complex area and there are different rules depending on whether the beneficiary takes the money as a lump sum or as a regular income from a drawdown scheme.  

How do I avoid paying emergency tax on a pension lump sum? 

Emergency tax is often applied to the first withdrawal you make from your pension if you take it as a lump sum and your pension provider does not have an up to date P45 from you. This is because HMRC will assume that this is a regular monthly income, and they will apply an incorrect tax code, which often results in you paying far more tax than you should. To avoid this, it is often better to take a small initial lump sum and then take further withdrawals after you have received a correct tax code from HMRC. Alternatively, you can apply for a tax refund from HMRC once the tax year has ended. 

How to avoid paying tax on your pension

If you want to mitigate tax on your pension, the only certain way to do it is to ensure that your total taxable non-savings income, including your pension income, is below the personal allowance. However, this will likely not permit you your desired standard of living in your retirement years.

Instead, there are a few tips and tricks for limiting the amount of tax you are liable to pay on your pension. These are outlined below:

Only withdraw the amount you need each tax year

Of course, you should take out as much as you need to live a comfortable life, but you might want to keep an eye on staying within certain tax thresholds. For example, if you are careful to take out no more than £50,270 in the current tax year, including any other income sources, you will only need to pay 20% income tax. However, if you were to take out £50,271 or more, you’d pay 40% on the amount over £50,270, up to the next tax threshold. 

Note that at retirement stage, you aren't required to draw down on your pension income to put into savings. This means it can be more financially beneficial to withdraw less, or none, and stay within a low tax range, rather than withdraw more and have to pay substantially more tax.

Take advantage of a drawdown scheme

Drawdown allows you to vary your income from year to year, meaning you can opt to keep it below a certain tax range in a given year. This is not possible for you, however, if you have an annuity, since annuity income cannot be varied at will. Bear in mind that drawdown does come with some risks, so always check with a financial advisor before you pursue it as an option.

Don’t draw your pension in one go

As is evident from the points above, staggering your pension so that you receive less on an annual basis ultimately means you will pay less tax. While you might be tempted to empty your pension pots in one go, it will mean paying income tax on that amount in one year. In most cases, this would be a poor decision from a tax perspective as it may result in your income falling into the higher tax rate bands and triggering a significantly larger tax bill.

Phasing your 25% tax free cash 

In the event that you need to draw more than £50,270 from your pension, you would be liable for 40% income tax on any further income until the next tax band or if you go over £100,000 and hit the 60% tax trap. It is possible, in this instance, to take smaller amounts from your tax-free cash to top up your income when you reach these limits. When planned with care, this can be an excellent retirement income strategy to ensure you do not pay higher rates of income tax.

The importance of Pension Freedoms

With the introduction of Pension Freedoms in 2015, this allows far more flexibility for an individual when they come to draw their pensions.  An individual can now draw their pension from minimum pension age onwards, when and if they like, in any portion that they like. As well as this flexibility allowing an individual to tailor their income needs around their chosen lifestyle, it also allows far more flexibility with regards to tax planning, including income tax, as well as inheritance tax, which are all intertwined when planning in this nature. It is therefore important that your pension schemes have adopted the Pension Freedoms to ensure that you have absolute flexibility both on drawing an income as well as on death. It is important to note that not all pension schemes have adopted modern flexibilities. If you are unsure, get in touch.

So, the only way to truly avoid paying tax on your pension is to ensure your pension withdrawals (including your state pensions) do not exceed £12,570 per year.

Ways to reduce tax on your pension however include:

• Not withdrawing more than you need from your pension each year.
• Utilising a drawdown scheme so that you can vary your yearly pension income.
• Avoid drawing large pensions in one go.
• Phasing tax free cash.

How can we help?

The Private Office offers advice from one of our experienced advisers, on how best to manage your pension, including how to avoid paying unnecessary extra tax. Get in touch to arrange a free consultation.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.  

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement.

The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice.

The UK job market remains under pressure, with hiring slowing and businesses bracing for rising costs. Recent surveys from KPMG and the Recruitment and Employment Confederation (REC) show a continued decline in permanent and temporary job placements as firms cut back amid economic uncertainty.

The October 2024 Budget introduced major tax hikes, including a rise in employers' National Insurance contributions from April 2025, adding further strain on businesses. With the Spring Statement approaching, concerns are growing over how upcoming tax changes will impact jobs and wages in the months ahead. All this together creates an uncertain job market where redundancies can become a very real possibility.  

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When faced with significant life changes like redundancy and the subsequent options of finding a new job or retiring early, it can be challenging and bewildering to figure out the best course of action. If you encounter redundancy, what factors should you take into account when considering your pension? 

What happens to my pension if I am made redundant?

If you are thinking about what redundancy means for your pension savings, the good news is that any pension you have built up is still yours, and you do not lose any part of it due to your change in circumstances. However, any contributions made by your employer into your pension will stop. Whether you can continue making personal contributions will depend on the type of Pension you have – which we will explore later.

In addition to your workplace pension, you might have been building up your State Pension or accumulating other pensions, like a Self-Invested Personal Pension (SIPP), which are not impacted by redundancy. However, it is important to note that if you experience a work hiatus due to redundancy, your State Pension credits will cease until you resume employment or start receiving eligible benefits, like Job Seekers Allowance.

What type of pension do you have?

The type of pension you have will largely determine what options you have post-redundancy. In the UK there are two pension scheme types: 

1. Defined Benefit (DB) - also known as a final salary pension.
   A DB pension is an occupational pension scheme that provides a promise of income for life at retirement, sponsored by the employer, and typically determined by the number of years you have been employed by the company.
2. Defined Contribution (DC) – also known as a money purchase pension.
   A DC pension can be either an occupational pension scheme provided by an employer or an individual scheme funded by the member (and can also be added to by the employer). With this type of arrangement, benefits at retirement will be dependent on the level of contributions made by the member (and employer) and investment returns on those contributions.

What are the options for your pension after redundancy?

When faced with redundancy, your pension remains protected, but your options depend on the type of pension scheme you have. Here’s a simplified breakdown of your choices: 

Option 1: Leave your pension where it is 

Defined Contribution (DC) Pension: If you have a DC pension, you can leave it with your current provider, and it will continue to be managed until you decide to take your benefits, typically from age 55 (57 from 2028).

• The value of your pension pot will rise or fall based on the performance of your investments.
• You might also be able to continue contributing to this pension, but you’ll need to confirm this with your new employer or pension provider.

Defined Benefit (DB) Pension: With a DB pension, you can leave your pension in the scheme, where it will remain until you reach the retirement age specified by your scheme (usually around 65 or 67). You will still receive the benefits promised to you, based on your salary and years of service.

• You can also take early retirement if the scheme allows, but your pension will be reduced since it will need to last for a longer period. 

Option 2: Transfer your pension to a new provider 

If you prefer to consolidate your pensions, you can transfer your pension pot to a new provider. You may do this with a DC pension, but it’s important to understand the potential pros and cons of transferring, especially with DB pensions, as this might mean giving up valuable benefits.  

• DC Pension: You can transfer the value of your pension to a new provider, which might be your new employer’s pension scheme or another personal pension.
• DB Pension: Transferring a DB pension is more complicated. If you are considering this, you should seek professional advice to ensure that you do not lose valuable pension benefits. 

How can you access your pension?

Based on current legislation, you are only able to access your pension from the minimum pension age of 55 (increasing to 57 in 2028), there are very few exceptions to this rule, and redundancy does not fall into that category.

Whilst this is the general rule, typically, DB schemes will have a scheme specific age which will be the minimum age that you can access your pension benefits without penalty.

Can you put redundancy money into a pension?

In short, yes you can, and it can be quite tax efficient to do so as any redundancy payment over £30,000 is taxable as income. Statutory redundancy pay does not include things such as holiday pay, unpaid wages or payment in lieu of notice which would be taxed as normal employment income.  

Should you wish to contribute into your pension using your redundancy payment, you should also be aware that there is a maximum amount that you can contribute each year tax efficiently. This is the lower of the following:

• The annual allowance less any employer or employee contributions (or DB funding) already made in the tax year, for the current tax year (2025/26) is £60,000. If you have not used all your Annual Allowance in the previous three years, then you may be able to carry forward any unused allowance to be utilised in the current year, allowing more than £60,000 to be contributed.
• Your relevant earnings for the year or £3,600 (£2,880 net) - whichever is higher. Only the portion of a redundancy payment above £30,000, which is taxable as income, counts as relevant UK earnings for pension contribution purposes. The tax-free £30,000 portion does not qualify as relevant earnings and cannot be used to justify pension contributions beyond the basic £3,600 limit if you have no other earnings 

There are two ways of doing this:

1. You can use part of your redundancy payment to make a pension contribution.
2. Or, should your employer agree, you could give up some of your redundancy payment as an employer contribution known as a ‘redundancy sacrifice’. 

Example: Redundancy sacrifice pension

Samantha has earned £60,000 in this tax year and has been made redundant. She has accepted a redundancy package of £35,000 and wants to consider her options in terms of pension contributions.

As the first £30,000 of her redundancy payment is paid tax-free there would be no additional benefit for her employer to make this pension contribution on her behalf, as she would not receive tax relief from an employer pension contribution.

The surplus above the first £30,000, i.e. £5,000 would be subject to income tax however, at her marginal rate. Therefore, should her employer agree to sacrifice this into her pension, there would be no tax due, giving her a tax saving of £2,000 as she is a higher rate taxpayer.

It is important for Samantha to also consider any other pension contributions she has made in the tax year to ensure she does not over-contribute and have an annual allowance charge. If Samantha is unsure, she should seek the advice of a financial adviser who could guide her.

How can we help?

If you have been made redundant, or are in the process of being made redundant and you are unsure of what course of action to take with your pension, get in touch with one of our advisers who will be happy to help. We’re currently offering anyone with £100,000 or more in pensions, savings and investments a free retirement review worth £500.

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.  Your pension income could also be affected by the interest rates at the time you take your benefits.

Levels, bases and reliefs from taxation may be subject to change

When it comes to the thought of retirement, probably the last word that creeps into our mind is “tax”. Why should it? Retirement is a time to think about all of the things that you have always wanted to do with the money you have worked hard to earn.

However, the unfortunate truth about retirement is that there may still be tax to pay and it's important to understand the different taxes that may apply to you and how they will affect the actual income you have to enjoy in retirement.  

With proactive financial planning and a clear understanding of your allowances and options regarding how you draw down on your wealth, you can take steps to minimise the amount of tax you pay and keep more of your hard-earned money.

Understand your allowances 

During retirement it’s likely that you will start drawing an income from various sources. Like any income that you were drawing whilst employed, retirement income may still be subject to income tax.  

In the UK everyone has a Personal Allowance, meaning that you do not pay tax on the first £12,570 (tax year 2025/26). Most income above the Personal Allowance is subject to income tax at 20%, rising to 40% above £50,270 and 45% above £125,140. It’s important to understand which tax band your total income places you in and how any new sources of income could push you into a higher bracket. In particular, those with very substantial retirement savings may benefit from specialist high-net-worth financial advisers who help maximise allowances and overall tax efficiency.

Maintain savings tax efficiently 

Part of any good, solid, financial plan is having enough cash, even in the environment we find ourselves in now, where rates are gradually reducing from the highs of the last few years. Drawing on your available cash reserves can be a tax-efficient way of generating a retirement income.  

The reason why drawing cash could be a way to save tax is that most withdrawals that you make from a bank account or building society are tax-free, provided that any interest that you have earned on your savings does not exceed the Personal Savings Allowance.

The Personal Savings Allowance (PSA) entitles you to £1,000 tax-free interest if you are a basic-rate taxpayer and £500 tax-free interest if you are a higher-rate taxpayer. Any interest that you earn as an additional-rate taxpayer is taxable. If your savings interest might exceed your PSA, using a Cash ISA can help shelter those funds from tax.

For those with an income from wages or pensions of less than £17,570, you may also be eligible for up to £5,000 of interest and not have to pay tax on it, in addition to your PSA. This is your starting rate for savings.

For more information about how this works, take a look at our article ‘How much savings interest is tax free’.

Utilise ISAs effectively 

Investment income can be taxed in slightly different ways depending on what income tax band you fall into and what type of income it is, such as dividends or interest. However, one way that you can avoid an unnecessary headache of tax being taken on your investments is to consider a Stocks & Shares ISA.

Stocks & Shares ISAs are also hugely beneficial from a tax perspective as any capital gains, interest or dividends that you earn on your investments are free from tax. Any withdrawals from Stocks & Shares ISAs are also free from tax, contrary to pensions, which we will move on to a little later.  

You can currently contribute up to the ISA allowance each year, which is currently £20,000. This is the amount that you are allowed to contribute, in total, each year. Bare in mind it's the total you can contribute across all available ISAs, such as a Cash ISA or Lifetime ISA

For example, someone with £100,000 invested in a Stocks & Shares ISA who earns £4,000 a year in dividends would pay no tax, whereas the same income held outside of an ISA would exceed their dividend allowance and may be partially taxable.

Plan your income withdrawals carefully 

Contrary to money drawn from an ISA, money drawn from a pension may be liable to income tax. The tax that you may pay on your pension depends on a broad range of factors. You first need to identify the type of pension scheme that you are enrolled in, and then you’ll need to establish what options you have available to you in accessing your benefits and determining ways to reduce the tax you might pay.

If you have a Defined Benefit scheme, sometimes referred to as a Final Salary pension, then typically you will receive an increasing income for the rest of your life. As you might expect, if you are receiving a fixed level of income each year then there isn’t much wiggle room if you want to reduce your income tax bill. If your income needs are higher than what you are receiving, then you could consider drawing on cash or investments as an additional source of tax-efficient income.

In comparison, if you have a Defined Contribution pension there may be more flexibility on how you can draw an income from your pot, but each has different tax consequences. Some pensions offer the full range of options in accessing your pension, but some schemes do not. If your scheme does not offer the full range of options in accessing your pension benefits, this could be detrimental to you. This inflexibility could result in you paying too much tax during retirement and not allowing you to plan accordingly using your allowances and adapting to your change in circumstances and needs.  

Despite the differences between Defined Benefit Schemes and Defined Contribution Schemes there is normally one similarity between the two, and that is the ability to take a tax-free lump sum from your pension. Current legislation permits that for individuals in a Defined Contribution Scheme, the maximum tax free cash sum is the lower of 25% of the total pension value or the available Lump Sum Allowance of £268,275 (there are some exceptions to this). For a Defined Benefit Scheme the available Lump Sum Allowance remains the same, but the maximum tax free cash sum depends on the scheme’s own calculations.

For instance, someone with a Defined Contribution pot of £200,000 could take £50,000 tax free and then structure the remaining withdrawals over time to stay within the Personal Allowance. This strategy could ensure you are using your allowances, planning tax efficiently and ultimately mitigating any tax liability for you.

Our ultimate tips here are to firstly find out what type of scheme you are in. Then secondly, to understand how you can access your pensions and what flexibility on this they offer. Finding out all the options will help you decide when you should be drawing on your pensions in conjunction with your other assets in order to minimise the tax you might pay and optimise your retirement income strategy.  

Factor in your State Pension 

Finally, no discussion about retirement income could be complete without stressing the importance of the State Pension. For most people, the current State Pension will be paid from age 66 (increasing to 67 which will be fully phased in from 2028 for those born on or after April 1960. Then expected to rise to 68 in 2044-46).

The State Pension can provide a valuable source of retirement income to help you meet your expenditure needs. However, it’s important to stress that coupled with any other income that you are receiving, the State Pension could push you into a higher income tax band.

Our tip here would be to check what other income you may draw upon when your State Pension kicks in. Having an idea of what other income sources you are drawing upon in conjunction with your State Pension, will then help you understand whether you could draw from a more tax-efficient source later in life, such as savings or investments. 

Devising a plan

At The Private Office (TPO), we have vast experience in designing financial plans that maximise wealth and align with your long-term goals. Our team specialises in retirement planning that prioritises both growth and tax efficiency. By taking a holistic view - which includes everything from wealth preservation to advice on long-term care planning - we ensure that your financial plan is built to withstand the costs of the future while you enjoy the present.

If you are looking for help and advice regarding your own personal finances in these uncertain times, we are offering anyone with £100,000 or more in savings, investments or pensions a free consultation. Why not get in touch and speak to an adviser.

Arrange your free initial consultation

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The value of your investments can go down as well as up, so you could get back less than you invested.

This article is also based upon our understanding of current law, HM Revenue and Custom's practice, tax rates and exemptions which are subject to change.

A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available.