The budget is a day away and we will finally get some clarity on what changes the chancellor Rachel Reeves has in store. We’ve heard some big rumours around retirement, though recent reports suggest that one of the longest running ones – restrictions to tax-free pension cash – seems to be off the table.
However, there’s still the prospect of tax tweaks to come that could have an impact on your retirement planning. It’s important to say that all of these are just rumours and may not happen but there are some key steps you can take to safeguard your savings.
If you are worried about restrictions to salary sacrifice or the introduction of a flat rate of tax relief it can make sense to make the most of the system as it currently stands by making a contribution to your pension.
Whether the change is made or not you’ve made a no-regrets move to boost your retirement resilience so it could be a good option if you’ve got a bit of spare cash.
There have been rumours that the government may look to hike income tax while making a cut to national insurance. This is something that would hit people over state pension age as they don’t pay national insurance so wouldn’t have any kind of offset to the income tax hike.
Other rumours also suggest an extended freeze to income tax thresholds that can tip people into higher tax paying territory.
Read more: How the self-employed can soften the blow from a potential 2p tax rise
Pensions are a tax efficient way to save for retirement, but you can also make use of ISAs to manage your income tax bill. Money taken from a stocks and shares or cash ISA is tax free so it can give you a lot of flexibility and control over how much you take and how much you give to the taxman. Meanwhile a cash ISA will protect you from income tax on savings interest.
Rumours that the chancellor was planning to cut back on the amount of tax-free cash people could take from their pension were rife and this led to many people rushing to take it early.
However, reports now suggest this may no longer be an option under consideration. HMRC recently clarified that applications to take tax-free cash cannot be cancelled. However, if you’ve submitted an application that has yet to be processed it’s worth checking with your provider if you can cancel that.
If you haven’t already used up your £20,000 ISA allowance, then you can put some of your tax-free cash in there. Putting it in a stocks and shares ISA means it won’t miss out on investment growth and income can be taken tax free.