A few weeks ago, Rachel Reeves delivered

her second autumn budget. As it

happened, the fear and speculation

leading up to the budget arguably did

more damage than the actual budget

itself, both to the economy and to

pensions. In the end, we had no changes

to taxfree cash or income tax relief, no

cliff edges, no action that you could

have taken before the budget that would

have left you any better off. But the

chaotic nature of government messaging

before the budget and the fact that

pension rules are changing yet again has

done untold damage to how pensions are

perceived by the public. Can they be

trusted? Are they worth it if the

government keeps changing the rules? As

a financial adviser, my team and I have

been assessing what this budget means

for our clients. And the irony is that

for many, perhaps most people, this

budget will make contributing to a

pension even more important. You're

probably already aware of the headline

changes, but what I want to talk about

today is how when taken together, these

changes affect the strategies you should

be using if you want to be in the

strongest financial position at

retirement. Because there is a lot of

nuance here that the headlines missed.

These are not necessarily new

strategies, but I'm going to demonstrate

why they're going to help even more

people save even more money than ever

before, including why being tactical

with when you choose to make pension

contributions is now so important. how

to work out when's the best time to

contribute and importantly when to stop.

Then finally, why I think you should

have more faith in pensions moving

forwards. Now, I was hoping to get this

video out last week, but it's been hard

to find the time to get in here and film

with all of the work and devastation

that's going on behind me. But here we

are. Let's start by briefly covering the

budget changes that affect pensions,

specifically defined contribution

pensions, as they were the main target

of these budget changes. When you

contribute to a pension, tax relief is

applied in one of three main ways

depending on how your scheme is set up.

Relief at source, net pay, or salary

sacrifice. Say we have Ian, who is

earning £50,000. If he decided to

contribute £10,000 to his workplace

pension, and that was a net pay pension,

£10,000 would go into his pension and

avoid income tax, but he would still

have to pay employee national insurance

at 8% and his employer would have to pay

15%. A relief at source pension works in

a slightly different way, but you end up

with the same result. However, with a

salary sacrifice pension, your

contribution goes in before national

insurance. So Ian would save £800 via

higher take-home pay whilst his employer

saves 1,500. Although sometimes if an

employer is generous, they may pay some

or all of their NI saving into your

pension. Salary sacrifice schemes are

more tax efficient for both parties,

which is why so many employers have been

switching to them recently. But from

April 2029, only the first £2,000 of

sacrificed contributions will avoid

national insurance. This is not a cap on

salary sacrifice itself. So £10,000

would still go into his pension. It's

just a cap on NI relief, which means

that employers costs are going to go up

and employees will end up with less

take-home pay. The default minimum

pension contributions are 5% for an

employee and 3% for an employer. So 8%

of qualifying earnings in total.

Importantly, this NI cap only applies to

salary sacrifice contributions, not

regular employer contributions, which

means that the £2,000 cap only affects

people who are earning more than

£46,240,

assuming they're contributing the

minimum. So this change specifically

affects people who earn more than that

or who want to save more for their

retirements. In fact, basic rate

taxpayers who want to save more for

their retirements are going to be hit

the most because the main rate of

employee NI is 8% whilst for higher rate

taxpayers it's 2%. Although employers

will take the biggest hit across the

board. This is how the rules are

expected to work but between now and

2029 a lot could happen. There will be a

formal consultation process with

employers, pension schemes and payroll

providers. So the final design could

change before implementation and who

knows we could even have a new

government by then which might amend

delay or reverse the policy entirely.

Now if you're one of the 33 million

people that this is likely to affect,

you might think that now is the time to

fill your boots and make the most of NI

relief whilst you still can. Well, not

necessarily because arguably there was

another announcement in this budget that

will have an even bigger effect on

pensions. And this is what most of the

headlines missed. Let me explain. For

most people, a pension is the most

taxefficient tool we have for building

wealth in the UK. Because with a

pension, you get income tax relief when

you make a contribution. Any growth

inside the pension is taxfree. Then when

you come to take money out of the

pension, typically you can draw up to

25% of that taxfree whilst the rest is

taxable at marginal income tax rates.

But hopefully in retirement you'll be in

a lower income tax bracket than you are

today and end up paying less tax on your

withdrawals than the tax relief you've

got going in. This net tax relief is

what makes pensions more tax efficient

than ISIS in most situations. And if you

want to be in the strongest financial

position in retirement, you have to be

tactical with when you choose to pay

into your pension and when you make

withdrawals so that you can get as much

tax relief as you can on the way in and

pay as little tax as possible on the way

out. Say Ian is currently 40 years old,

but he wants to start saving more for

retirement. Typically, the first thing

he want to do is to make sure he

contributes enough to his workplace

pension to get any employer contribution

match. Say that's the minimum 5%

contribution to get his employer's 3%.

For every,000 pounds of net pay Ian

gives up, he gets income tax relief. And

let's also assume that he's using a

salary sacrifice pension. So he also

saves on NI, leaving him with £1,389

in his pension. But he then gets his

employer contribution match of 3% which

pushes us up to £2,139.

That's effectively 53% tax relief. This

is why making contributions to get your

employer contribution match are

typically the most taxefficient

contributions you will ever make. But

Ian wants to do more. He has another,000

that he wants to invest for retirement.

And the question is, should he

contribute to his pension now and make

the most of salary sacrifice whilst he

still can or invest this money in a

stocks and shares Iser and then

tactically use that to make pension

contributions in the future if there's

an opportunity that he can get even more

taxfree. Let's assume that Ian's salary

rises in line with inflation and

inflation runs at 4% per year. By this

time next year, he'll be in the higher

rate tax bracket. But because of the

pension contributions he's already

making, it will take 2 years before he

actually starts to pay it. So perhaps

it's better for Ian to wait, invest in

ISA now, and then make pension

contributions in the future when he can

get higher rates of tax relief. Or could

there be an even better opportunity?

Most people think that the highest rates

of income tax is 45% if you earn over

£125,000 or 48% if you're in Scotland.

But that's not quite true because we

have this mad system where people who

earn between £60,000 and £80,000 can end

up paying effective rates of tax of over

50%. Because for every £200 you earn

over £60,000, 1% of your child benefit

gets clawed back. So if you earn over

£80,000, you lose it all. This means

that if you have two kids, your

effective rate of tax on this portion of

income is about 51%. And that's not

including national insurance. Then for

every two you earn over £100,000, you

lose one pound of your personal

allowance, which means that the

effective rate of tax from there to

£125,140

is 60%. What's more is that after

£100,000, you also lose eligibility for

taxfree childare and working parent

benefits, which could be worth more than

£100,000 per year, making the effective

tax rate higher than 100% for certain

people. The biggest change that Rachel

Reeves announced in this budget was

freezing income tax thresholds for

another 3 years until April 2031. This

means that these bans would have been

frozen for 10 years. This is a stealth

tax, which is especially damaging when

inflation is running high because it

drags more and more people into higher

and higher tax brackets. If Ian is

planning on retiring at 60, using the

same assumptions as before, he'll be

earning over £100,000 per year by the

time he gets there. After the end of the

current freeze, income tax thresholds

are expected to increase in line with

inflation, but they might not. The

government has made no commitment either

way. So millions of people who never

imagined that they would end up in these

higher tax bands and having their

benefits withdrawn may find themselves

in that position. But what is one of the

most effective ways that you can avoid

paying higher tax rates and reclaim

these benefits? Pension contributions.

This is why being tactical with when you

make your pension contributions is going

to be so crucial for so many more people

going forwards. But you can only do that

if you sit down and build a model of

where you expect your earnings to be in

the future. By 2031, Ian's projected to

be earning £63,000, well into the high

rate tax band to the point where he's

going to start having his child benefits

clawed back. So if he makes additional

pension contributions at this point, not

only will he get higher rate income tax

relief, but because this reduces his

taxable income, he'll also reclaim his

child benefit payments, resulting in an

effective rate of 50% tax relief. Which

means if Ian has a,000 pounds to invest

today, he could invest that into a

stocks and shares ISA now and then use

that to make even larger pension

contributions in the future at a time

when he's likely to get the most tax

relief over a full career. The

difference between getting 28% versus

50% effective relief can run into tens

if not hundreds of thousands of pounds

depending on how much is being saved.

But waiting is not always the best

option because income tax thresholds are

not the only victims of fiscal drag. The

maximum you can put into a pension each

year and earn income tax relief is the

lower of your relevant earnings or

£60,000. But for every two pound of

adjusted net income you have over

£260,000, you lose £1 of your annual

allowance. to the point that if you earn

over £360,000 a year, you're restricted

to only being able to put £10,000 into

your pension each year. We currently

don't know when or if these thresholds

will increase. So although they may seem

high today, they might not be in the

future, which is again why it's so

important that you sit down and project

your earnings into the future to

understand if this might ever be a

problem. If you don't do this, you may

end up missing out on a big opportunity

to save yourself a lot of tax in the

future. Although Reeves income tax

freeze is going to make pension

contributions more effective, we also

need to consider the effects that it's

going to have on withdrawals. If Ian

uses his,000 to make additional

contributions today, he'll get 28% tax

relief. At retirement, you can typically

draw up to 25% of the value of your

pension taxfree up to a lifetime limit

of £268,275,

whilst the other 75% is taxable at

marginal rates of income tax. Currently,

the personal allowance is £12,570,

which means that if Ian had no other

income, he could potentially draw

£12,570

from the taxable part of his pension

without paying any tax. So, if Ian's

pension was relatively small and he

manages withdrawals over a number of

years, he could potentially pay no tax

at all when he withdraws his money,

giving him a net gain of 28%.

But there's a few problems here.

Firstly, because of this freeze and

inflation, the relative lifestyle that

you can afford while staying within the

personal allowance will get smaller and

smaller and smaller. And the same goes

for the relative lifestyle for staying

within the basic rate tax band.

Secondly, from April 2026, the state

pension is rising to £12,547,

taking up almost the entirety of the

personal allowance, and it will increase

at least by inflation thereafter. So

once Ian is in receipt of the state

pension, it's likely that any taxable

pension withdrawals he makes will then

fall into the basic rate tax band. Given

that Ian is planning on retiring at 60,

this means that he's only going to have

a couple of years to make use of his

personal allowance. So let's then assume

that for any additional pension

contributions he's thinking of making

now, he's going to pay at least 20% tax

on withdrawal. If we assume 25% of these

withdrawals are taxfree, he would still

have a net gain of 13%. And of course,

if Ian can get 40, 45, or even 50%

effective tax relief on his pension

contributions, that will be an even

better result. But at what point would

it make sense to stop paying into a

pension? Fiscal drag also means that

more and more retirees are going to be

dragged into higher tax bands. If the

tax relief you get on the way in equals

the tax you expect to pay on the way

out, you'd still be better off so long

as 25% of that withdrawal is taxfree.

But the maximum taxfree cash that you

can withdraw from a pension over your

lifetime is currently £268,275.

If you think your pension is already on

track to grow to more than a

million73,000

based on the contributions that you are

already making and assumed investment

growth, then any additional contribution

you make now is not likely to get you

more taxfree cash and is likely to be

fully taxable when you withdraw it. This

is yet another reason why if you want to

make good pension decisions, it is so

important that you project your finances

into the future to understand if this is

going to be an issue. So, is this then

the point at which you should stop

paying into a pension? Well, that

depends on what alternatives you have.

Say you have a spouse who is a basic

rate taxpayer and based on your

projections, you think they're likely to

pay no or basic rate tax on their

pension withdrawals. In this case, it

could be more tax efficient to make a

personal contribution to their pension

instead of yours. And remember, even if

your spouse earns nothing, you can still

contribute up to £2,800 to their pension

each year and they'll still get basic

rate income tax relief on that. But if

you don't have that option and your only

other alternatives is investing money

into a general investment account where

you may have to pay tax on income and

capital gains, continuing to contribute

to your pension may still be more tax

efficient. If you have ISA allowances

available, then putting money into an

ISA would leave you in the same net tax

relief position. Nothing. You don't pay

tax on any income or growth inside

either rapper. But at least until April

2027, pensions fall outside of your

estate for inheritance tax purposes. And

if you die before the age of 75, whoever

inherits your pension won't have to pay

any income tax, which could be important

advantages for certain people. So maybe

in certain situations it might make

sense to keep contributing, but when the

expected benefits are this minor, you

really start to question whether it's

worth it given there's a risk that the

government could move the goalposts

again. Over an investing lifetime,

you'll live through 15 or more

governments. And as far as I'm aware,

every single government has changed

pension rules in some ways. Sometimes

for the better, sometimes for the worse.

I know how frustrating this is for

long-term planning, but the reality is

this. Pensions and ISAs remain some of

the most generous tax efficient

investment vehicles in the world. And I

would much rather have them and accept a

degree of tinkering than not have them

at all. If you're close to retirement,

the risk of change understandably feels

bigger. But as I said before the budget,

I think it's unthinkable that the

government would introduce overnight

changes that throw retirees plans into

chaos. Historically, going right the way

back to the 1970s, pension changes that

materially affect people near retirement

have been signposted years in advance

with transitional protections to

preserve existing benefits, which is a

very strong precedent. One that's worth

remembering if we find ourselves back in

the same position next year. As you

would have seen throughout this video,

projecting your finances into the future

is essential if you want to be in the

best financial position at retirement.

It's also essential for knowing when

you've done enough and when you can

finally start taking your time back. In

this video here, I show you how two

people did exactly that and were able to

start living the lives they'd imagined

years earlier than they ever thought

possible. I'll see you there.