Autumn Budget: Your pension and investment questions answered

The Autumn Budget often raises questions about what changes could be on the horizon for pensions and investments.

Instead of reacting to speculation, it’s usually better to stay informed and make decisions based on what’s right for you and the facts available.

Here, we answer some of the most common questions about pensions, investments and tax planning.

I’m over 55 – should I take my pension tax-free cash now?

Taking your pension tax-free cash is a big decision and should be made with care. The run-up to the Budget often prompts speculation about potential changes to the tax-free cash limit, but it’s important not to act on speculation alone. Under current rules, you can draw up to 25% of your pensions as tax-free cash, capped at £268,275 over your lifetime.

If you were already planning to take your tax-free cash and it aligns with your goals, now might be a good time.

However, if your decision is driven purely by the possibility of future rule changes and you don’t actually need the money, it’s worth thinking carefully before acting.

Many people have taken money out of their pensions based on speculation, only to miss out on valuable tax-free investment growth by moving the money into cash.

Example

Someone who withdrew a £50,000 tax-free lump sum from a £200,000 pension pot ahead of the 2024 Budget and then kept that money in cash for two years could have missed out on nearly 23% more growth (or £11,395) compared to leaving it invested in their pension.

This assumes a portfolio of 60% shares and 40% bonds¹ and that the investor is a higher-rate taxpayer who, once they’ve taken the lump sum out of their pension, pays 40% tax on the interest it earns in their cash savings account².

I’m saving for retirement – should I top up my pension?

If you can afford to top up your pension and it fits your financial plan, it’s a smart move. The Budget often brings speculation about reducing tax relief for higher-rate and additional-rate taxpayers, but at the moment the rules remain unchanged.

Personal pension contributions benefit from tax relief at your highest rate of income tax:

• If you pay in £80, an extra £20 is added as basic-rate (20%) tax relief.

• Higher-rate (40%) and additional-rate (45%) taxpayers³ can claim back a further £20 or £25 via a tax return.

By contributing more to your pension now, you can take advantage of current rates of tax relief, which effectively increases the value of your contributions. Additionally, the sooner you invest, the more time your money has to grow, potentially providing a larger nest egg for your retirement.

Are the rules on pensions and inheritance tax changing?

The final legislation is still to be published, but we know that most pensions will no longer be exempt from IHT from 6 April 2027. This means that if you still have money left in your pension pot when you die, it might be subject to 40% tax.

The changes will affect defined contribution (DC) pensions, such as self-invested personal pensions (SIPPs) and most workplace pensions. Some annuities (a type of insurance product which you buy with your pension) will also be included. Defined benefit (DB) pensions, which pay a guaranteed income and are funded by employers, will not be affected and will remain exempt from IHT.

To learn more about the new rules and who will be impacted, read our article on what the pension and IHT changes mean for you.

Will the ISA rules change?

We don't expect any additional changes to individual savings accounts (ISAs) in the Budget. However, we do know that significant ISA reforms are due to take effect from 6 April 2027:

Changes for investors under age 65⁴:

• The amount that can be paid into cash ISAs each tax year will reduce from £20,000 to £12,000.

• Transfers from a stocks and shares ISA to a cash ISA will no longer be allowed.

Changes affecting all investors:

• Interest paid on cash held in a stocks and shares ISA will be subject to a 22% charge. To put that into context, if you held £10 in cash in your stocks and shares ISA and earned 1.85% interest a year⁵ (around 19 pence), the charge on that interest would be around 4 pence.

• Money market funds can continue to be held within a stocks and shares ISA, provided they do not make up 100% of the investments. The usual ISA tax benefits will continue to apply, meaning any income earned within the ISA will not be subject to income tax.

Many of the key benefits of ISAs are staying the same. The overall ISA allowance remains £20,000. Any growth, dividends⁶ and interest generated by investments in a stocks and shares ISA remain tax free, helping you keep more of your returns. The new rules only affect interest earned on cash. 

Find out more about what the new ISA rules mean for investors.

Could capital gains tax (CGT) change?

We don't know whether the government will announce any changes to CGT in the Budget.

CGT is a tax you may have to pay when you sell investments held outside an ISA or pension and make a profit.

Under current rules:

• you can realise gains of up to £3,000 each tax year before CGT becomes payable

• gains above that amount may be taxed

• the CGT rate is typically 18% for basic-rate taxpayers and 24% for higher-rate taxpayers⁷

It's usually unwise to make investment decisions based on rumours alone. However, if you were already planning to sell investments held outside an ISA or pension, it may be worth considering whether bringing that sale forward fits with your financial plans.

If you're concerned about future CGT changes, one option is to review how tax efficiently your investments are held. Investments inside ISAs and pensions are sheltered from CGT, which means you won't pay tax on any gains generated within those accounts.

Whatever the Budget brings, any decision to sell investments should be based on your long-term goals and overall financial plan, rather than speculation about possible tax changes.

¹ Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.

² Source: Vanguard calculations based on the period 1 September 2024 to 17 August 2026. Shares are represented by the FTSE Global All Cap Index and bonds by the Bloomberg Global Aggregate Bond Index (GBP Hedged). With hedging, managers typically use derivatives (a type of financial contract) to offset exchange rate movements. The contracts typically lock in a pre-determined exchange rate at which the manager can buy or sell the foreign currency at a future date. Cash is represented by the Sterling Overnight Index Average (SONIA) rate. SONIA reflects the average rate of interest banks pay to borrow overnight. Calculations assume the individual has used up their personal savings allowance, which is £500 for a higher-rate taxpayer (tax year 2026-27).

³ These rates apply to taxpayers in England, Wales and Northern Ireland. For Scottish tax bands and rates see HMRC’s ‘Income Tax in Scotland’.

⁴ Investors will be treated as aged 65 from the start of the tax year in which they turn 65.

⁵ The 1.85% interest rate used in the example reflects Vanguard’s cash rate as at 24 June 2026.

⁶ Dividends are the payments some companies make to their shareholders out of their profits.

⁷ For more information on CGT rates see HMRC’s website.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Past performance is not a reliable indicator of future results.

The eligibility to invest in either ISA or Junior ISA depends on individual circumstances and all tax rules may change in future.

Eligibility to invest in a Vanguard Personal Pension depends on your individual circumstances. Please be aware that pension and tax rules may change in the future and the value of investments can go down as well as up, so you might get back less than you invested. You cannot usually access your pension savings or make any withdrawals until the age of 55, rising to the age of 57 in 2028.

If you are not sure of the suitability or appropriateness of any investment, product or service you should consult an authorised financial adviser. Please note this may incur a charge.

Any tax reliefs referred to are those available under current legislation, which may change, and their availability and value will depend on your individual circumstances. If you have questions relating to your specific tax situation, please contact your tax adviser.

An investment in a money market fund is not a guaranteed investment. An investment in a money market fund is different from an investment in deposits, as the amount invested in a money market fund is capable of fluctuation. Money market funds do not rely on external support for guaranteeing the liquidity of the money market fund or stabilising the Net Asset Value per share. The risk of loss of the amount invested shall be borne by the investor.

For further information on risks please see the “Risk Factors” section of the prospectus on our website.

Important information

This is a marketing communication.

Vanguard only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the products described, please contact your financial adviser.

This is designed for use by, and is directed only at, persons resident in the UK.

The information contained herein is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information is general in nature and does not constitute legal, tax, or investment advice. Potential investors are urged to consult their professional advisers on the implications of making an investment in, holding or disposing of "units/shares", and the receipt of distribution from any investment.

The Authorised Corporate Director for Vanguard® Investments Money Market Funds is Vanguard Investments UK, Limited. Vanguard Asset Management, Limited is a distributor of Vanguard® Investments Money Market Funds.

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