The pensions industry has raised concerns over the government's new Pension Tax Allowance and changes to the state pension triple lock following yesterday's Autumn Budget, while welcoming measures to improve the treatment of pension death benefits and support guided retirement.

Despite a relatively quiet Budget for private pensions, industry experts warned the new allowance could add complexity and potentially penalise pensioners with modest private savings, while questions remained about the long-term implications of the adjusted triple lock.

Pension Tax Allowance

One of the Budget's pension announcements was the introduction of a new Pension Tax Allowance from April 2027, designed to ensure pensioners whose total income does not exceed the full new state pension will not have to pay income tax.

The allowance will apply until April 2030 and will be gradually withdrawn for pensioners with income above the full new state pension, avoiding the immediate 'cliff edge' that had previously raised concerns.

However, LCP partner, Steve Webb, warned that the measure could become increasingly difficult to withdraw, particularly as the gap between the frozen personal allowance and the state pension continues to widen.

"Taking those wholly dependent on the new state pension out of tax is a quick fix to the embarrassment caused by the repeated freeze in the tax-free allowance," he said.

"But the longer the policy goes on, the harder it will be to switch off. There is a real risk that this 'quick fix' will turn into a long-term headache for this government and its successors."

Webb highlighted that the Budget made no financial provision to continue the measure beyond 2030, noting that withdrawing it could leave more than a million low-income pensioners facing tax increases of over £200.

AJ Bell head of public policy, Rachel Vahey, also raised concerns about the implications for those with modest private pension savings.

"Tapering the new Pension Tax Allowance gets around the potential unfairness of removing the allowance completely once income exceeded the state pension and means those with only a modest private pension will pay just a small amount of tax on those savings," she said.

"But it still means those who have done the right thing and saved could rightly argue their diligence has effectively been punished."

Meanwhile, IGG head of policy and external affairs, Louise Davey, welcomed confirmation that the allowance would apply to all pensioners whose income was at or below the full state pension amount, regardless of its source.

She argued that this addressed previous concerns that pensioners receiving some private pension income could be disadvantaged compared with those relying solely on the state pension.

Triple lock changes

The Budget also confirmed plans to adjust the state pension triple lock from April 2030, replacing the annual earnings-growth component with a mechanism designed to maintain the state pension's value relative to earnings over time.

The government estimated that the changes would reduce state pension spending by £15bn a year by the late 2030s and £50bn by the late 2040s.

WTW senior director, David Robbins, warned that the scale of the savings would depend on future earnings and inflation volatility, noting that the figures were expressed in cash terms.

He also highlighted the Budget's assumptions about future increases to the state pension age, suggesting the Treasury documents appeared to anticipate an earlier rise to 68 than currently legislated.

"The OBR's new estimates of how the change will slow the rise in public sector debt may help it make that case," he added.

However, Wedlake Bell senior associate, James Newcome, argued that any Treasury savings from the reform would need to be considered alongside the impact on retirement incomes and confidence in pension saving.

Meanwhile, Howden Employee Benefits head of DC pensions, Mark Futcher, criticised the Budget for not going far enough in addressing retirement adequacy.

"With 12.2 million people still facing inadequate retirement incomes, tinkering at the edges will not be enough," he warned.

Futcher also reiterated concerns over the previously confirmed salary sacrifice cap, arguing that it would create a barrier to retirement saving.

Death benefits reforms welcomed

The industry was more positive about the government's decision to remove the two-year rule for pension and lump sum death benefits, with the change taking effect from 28 October 2026.

Under the previous rules, beneficiaries could face income tax charges where certain death benefits were paid more than two years after the scheme became aware of the member's death.

Broadstone head of policy, David Brooks, welcomed the removal of the deadline, arguing that beneficiaries should not face different tax outcomes simply because of administrative delays.

"Removing that cliff edge should mean outcomes are driven more by member circumstances and less by administrative timetables," he noted.

However, Arc Pensions Law partner, Beth Brown, warned that some schemes could face practical challenges implementing the change.

"Trustees will need to check whether their rules impose an independent two-year deadline or simply track the tax legislation," she explained.

"Depending on the drafting, some schemes may need a rule amendment before trustees can make full use of the new flexibility despite the change having immediate effect."

The government also announced changes to make it easier for terminally ill members to access their pension savings, including allowing medical evidence from overseas practitioners.

PensionBee head of pensions, Becky O'Connor, welcomed the proposals, suggesting they could reduce the difficulties seriously ill members face when seeking access to their benefits.

However, concerns remained over the forthcoming inclusion of pensions within estates for inheritance tax (IHT) purposes.

Indeed, Davey warned that the IHT timelines remained "unresolved", despite changes to death benefits taxation.

Guided retirement and CDC

The Budget also confirmed further legislative changes to support defined contribution (DC) scheme consolidation, guided retirement and retirement-only collective defined contribution (CDC) pension schemes.

These will extend the circumstances under which members can retain certain pension protections after transfers and allow members to transfer from retirement CDC arrangements into drawdown within a specified timeframe.

WTW head of CDC and risk sharing, Simon Eagle, welcomed the proposed transfer flexibility, arguing that it could increase trustee confidence in retirement CDC as a default retirement income solution.

"A member 'cooling off period' will help alleviate potential trustee concerns around putting forward retirement CDC as a default income solution. Members will have a short-term option to change their minds if they no longer want the income for life," he explained.

Isio director and head of DC investment, Helyne Slade, also welcomed the continued focus on retirement solutions, but stressed the importance of ensuring that the different reforms worked together.

"Ultimately, the success of DC reform should be measured by whether greater scale, better investment opportunities and improved retirement solutions translate into better outcomes for members," she added.

Stability welcomed amid wider reforms

Despite the announcements, much of the industry welcomed the absence of significant further changes to pension tax relief, annual allowances and tax-free cash.

Pensions UK chief policy officer, Zoe Alexander, argued that the decision would give schemes and providers greater certainty as they implement the government's wider pensions reform agenda.

"We particularly welcome that the government has not introduced measures that could weaken incentives to save for retirement," she said.

"Pension tax policy should support adequacy and encourage long-term saving."

Aegon head of pensions, Kate Smith, also welcomed the relative stability, describing the Budget's "no pensions drama" approach as positive for long-term savers.

However, Aon partner and head of UK retirement policy, Matthew Arends, suggested that the lack of further pensions measures could reflect the government's decision to await the Pensions Commission's findings, due in February 2027.

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