This was a very bad budget for those writing stories about changes to pension saving. There were small increases to tax on savings including property rentals but pensions were left untouched. I suspect a large proportion of the stories waiting to be written have been binned.
The story of neutralising chances of those just getting state pension paying income tax to zero , is not budget news . It did however get budget boos from the Pension Monkey
The pension tax allowance is a ridiculous measure that will introduce further unnecessary complexity to our tax system
— Tom McPhail (@PensionsMonkey) October 28, 2026
Nor budget news, the story that mineworkers will get a dish out of surplus in the mineworker pension funds. I haven’t seen any complaints but they may come.
Nor the minor changes to pension tax rules, covering the serious ill-health lump sums and lump-sum death benefits (which kick in if you’re diagnosed to be within 12 months of death)
To ensure you feel on top of the budget as a pension expert, I will give you stories sent me which have no interest to most of us at any time except on budget day afternoon.
Tax avoidance while being paid a full state pension
This year’s budget had one mention of pensions and it related to overseas UK people cheating on being seen to earn in the UK by paying
The Chancellor’s reference to overseas residents “obtaining a pension on the cheap” targets the long-standing use of voluntary Class 2 National Insurance contributions (NICs) by British expats and individuals working abroad to qualify for the full UK State Pension.
The Mechanism
Under the UK State Pension system, building entitlement typically requires 35 qualifying years of National Insurance to receive the full amount.
Historically, individuals living and working abroad could pay voluntary Class 2 NICs if they met relatively low historical UK presence thresholds (previously just 3 continuous years of UK residence or contributions):
Class 2 NICs rate: Approximately £3.45 to £3.50 per week (roughly £180 to £182 per year).
Class 3 NICs rate: Standard voluntary contributions for UK non-workers or individuals living abroad who don’t qualify for Class 2 cost around £17.45 to £17.75 per week (over £900 to £920 per year).
Standard UK employees: Domestic workers and employers pay substantial Class 1 NICs (and general taxation) over their careers to support state benefits.
By paying around £180 per qualifying year under Class 2, someone living abroad could accumulate additional years of UK State Pension entitlement (worth approximately £330+ per year in guaranteed retirement income for each qualifying year purchased) at an extraordinarily high return on investment.
What the Government Is Cracking Down On
Treasury policy notes and legislative changes aim to close this disparity through two major structural reforms:
1. Abolishing Voluntary Class 2 for Non-Residents: Closing off access to Class 2 for individuals living abroad, compelling those who wish to top up their UK State Pension record to pay the standard Class 3 rate (over five times higher).
2. Raising the UK Link Threshold: Increasing the minimum prior UK residence or contribution requirement from 3 years to 10 years before an individual living overseas is permitted to make voluntary contributions at all.
The Government’s stated rationale is that paying minimal contributions from outside the UK system while drawing the same inflation-linked or baseline state pension as lifetime UK taxpayers was an unjustified fiscal drain.
So there you are! I love to be seen as an expert in areas I have neither interest or knowledge but I have friends like John Mather in Portugal who have advised offshore Brits keen to enjoy the benefits of UK tax payers without paying the damned tax.
Something else to become experts that’s nothing to do with you (unless you’re civil servants)
The government will remove the two-year rule so that beneficiaries will no longer be taxable solely because tax-free pension and lump sum death benefits are paid more than two years after the member’s death.
The Budget document today (28 October) said the change will apply to any pension and lump sum death benefit payments made on or after 28 October 2026, regardless of when the member died, and will be introduced through Finance Bill 2026-27.
It said the move would cost around £5m in the 2026-27 tax year and then £15m a year thereafter.
The government also confirmed it will make changes to the way tax is assessed and collected where a deceased member’s lump sum death benefit allowance has been exceeded to provide greater certainty to individual beneficiaries
The move comes after Cabinet Office minister Sally Jameson said that beneficiaries would not be left out of pocket should Civil Service Pension Scheme (CSPS) delays lead to avoidable death benefit tax charges.
Earlier this month, the chair of the influential House of Commons Public Accounts Committee Sir Geoffrey Clifton-Brown said it was with “disbelief” he learned the pension benefit payments for families of deceased civil servants could be taxed due to administrative delays at the scheme.
Under current rules, where a person dies under the age of 75, their heirs generally receive lump sums and other payments free of income tax as long as these lump sums are paid within two years of the notification of the death. If payment takes longer than this, income tax must be paid at the recipient’s marginal tax rate.
Clifton-Brown said the “chaos” currently engulfing the CSPS meant the likelihood of death benefit payments being made within two years was “slim”.
So there you have it , gentle readers, the most shocking budget for many a year as it had no impact on your future or current pension. Well that’s not quite true as though the budget speech had no mention of pensions, the blurb that accompanied it include promises that the irrevocability of transfers.
Professional Pensions have found some promised change to guided retirement (and R-CDC) will be amended.
The government is set to make legislative changes in order to enable defined contribution (DC) scheme consolidation and introduce retirement collective DC (CDC).
The measures include expanding the circumstances when a member may keep certain protections following a transfer and allowing members to transfer from a retirement CDC pension to a drawdown arrangement within a set timeframe.
I don’t think we have the detail of this but I get the impression that Government would like to make the business of consolidating pots and offering retirement CDC a little more risky (of being caught out by rules).
All this being good, I expected happy noises from the newly freelance – Jo Cumbo but no! Here she is posting within minutes on linked in.
Josephine
Breathing space for Householders: at what cost to Pension Pots?
The Government’s focus on “breathing space” for householders comes against a backdrop of growing pressure on private-sector #pension funds to act as utilities for funding economic growth. #Budget2026 sets out plans for higher spending and borrowing, while increasingly looking to private-sector capital to support investment. Paragraph 4.102 of the Budget Policy document states that the Mansion House Accord should unlock around £25bn of additional investment into UK private markets. It adds the government intends to work with pension providers, asset managers and the wider industry to “accelerate the deployment of capital” into innovative, scaling businesses.
But at what cost to pension savers?
These are the retirement savings of individuals already squeezed by the cost of living, higher energy bills and increased borrowing costs. Now, their pension pots are being drawn further into the drive to finance economic growth. The risk is that this becomes a stealth cost to private-sector retirement provision, with the wider economic agenda taking precedence over the interests of individual savers.
The industry has so far sought to encourage investment through incentives. Such investments must, however, be justified by their merits and demonstrably serve the best interests of pension scheme members.
The critical question is whether the drive to accelerate investment in UK businesses risks putting economic policy objectives ahead of fiduciary duty. Pension capital can support economic growth, but that cannot come at the expense of the fundamental responsibility to protect members’ retirement outcomes.
Breathing space for householders today should not come at an unexamined cost to their pension pots tomorrow.
#Budget #FiduciaryDuty #Savings
HOT PRESS from STEVE WEBB- who knows it all!
Perhaps been talking with Tom McPhail (the Pension Monkey above
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