Millions of UK pension savers could be missing out on tens of thousands of pounds in long-term returns by delaying contributions until the end of the tax year, new data from digital pension provider Penfold had suggested.

The start of a new tax year is a natural catalyst for pension savers to make sure they are making the most of their annual pension contribution allowances. Paying into a pension before tax year end makes sense as unused annual allowances can’t always be recovered (beyond the carry forward rules).

But while this behaviour has become a consistent annual trend, it may come at a high long-term cost.

Take someone investing £10,000 at the start of each tax year. Over 25 years they could end up with around £24,000 more than someone who waits until the end of each year to contribute the same amount, assuming 5% annual growth, according to Penfold’s calculations.

Chris Eastwood, CEO at Penfold, said: “We see this pattern every year. Many people top up their pension close to the tax deadline.

“It’s great to see people taking action. But starting earlier gives your money more time to grow, and that can make a real difference over time.”

Paying into a pension before tax year end

Analysis of contribution behaviour on Penfold’s workplace pension has revealed a clear pattern of last-minute saving.

One-off pension contributions in March reached up to 4.4 times the average monthly level seen throughout the rest of the year.

This means a disproportionate share of pension saving is concentrated at the end of the tax year, with around one in five (around 22%) of annual contributions made in March alone.

The data also shows the average contribution value in March is around three times higher than in most other months.

But those who leave paying into a pension to the last minute with a one-off lump sum could be missing out.

How pound cost averaging could boost your pension returns

Waiting until the end of the tax year to make a one-off large contribution to your pension – rather than investing regular smaller sums – not only potentially gives your money less time to grow, it can also mean you miss out on the advantages of pound cost averaging.

Standard Life gives an example: if you invest a lump sum of £12,000 and the market then drops over the next year, your investment could end up down 10%.

But if you spread that investment out and invest £1,000 each month across the year and the market drops in the same way, then you buy into the market at a lower price each time, meaning your overall investment may only drop by 5% in total.

Though if markets rise rather than fall over the same period, you’ll make smaller profits than you would have if you’d invested the lump sum.

In contrast to one-off contributions, Penfold’s data also found regular monthly contributions remain broadly consistent throughout the year, which can help with long-term saving habits over last-minute decision-making (though all pension contributions are a good idea).

“The new tax year is a good moment to reset”, Eastwood from Penfold said. “Contributing earlier and more consistently can help savers make the most of compounding and build stronger financial futures.

“Small, regular contributions throughout the year can be a simple way to build a bigger pension over time.”

Pension investors prefer to fill their portfolios with funds, according to the latest research – but they value diversification instead of ‘one and done’ picks, and are currently erring towards caution.

DIY self-invested personal pension (SIPP) investors are making strategic choices about where and how to invest their pension based on their life stage and macro economic events, according to new research.

Funds represent almost 40% of all holdings among SIPP investors on the Interactive Investor (ii) platform, according to the company’s own data, as of 31 March 2026.

But in order to achieve diversification, there is evidence investors are mixing and matching, with funds accounting for 39.8% of SIPPs, followed by 18.1% for equities, 16.2% for ETFs, and 11.5% for investment trusts.

Kyle Caldwell, funds and investment education editor at ii, said: “When it comes to the world of investing, there are some golden rules that can greatly increase the chances of investment success, with one of the key ones being diversification.

“The benefits of diversification, spreading your investments far and wide, is achieved through investing in a range of different investment types and avoiding being overexposed to one country, sector, investment style, or theme.”

Top pension investments for DIY investors

Pension savers who haven’t yet started to access their pot are unsurprisingly showing more appetite for risk as they look to grow their money over a longer timeframe, favouring global equity index funds. However, those in drawdown are focusing on income generation and capital preservation.

At the moment, very low risk money market funds are proving popular choices, both for pre-retirement and post-retirement SIPP portfolios.

Source: Interactive Investor, as of 31 March 2026

Caldwell said: “Money market funds own a diversified basket of safe bonds due to mature soon, normally within just a couple of months, meaning investors can earn an income on their cash with minimal risk.

“The fund yields, which reflect the amount of income generated from the underlying bonds held, are typically in line with the Bank of England base rate. Therefore, as things stand today, investors can procure yields of around 3.75%, which at the moment are proving inflation-beating income.”

Investors often use money market funds to park cash balances for a short period while deciding where to invest, or to guard against periods of stock market volatility. Given the Middle East conflict is ongoing some investors are more inclined to adopt a more cautious stance.

However, said Caldwell, it is important to bear in mind that balance is key. “While money market funds, given their current yields, serve as useful defenders in a portfolio, having too much in cash or cash-like alternatives for long periods will hamper long-term growth.”

Another sign of caution is shown through Jupiter Gold & Silver and Ninety One Global Gold appearing in ii’s top 10 table for SIPP drawdown customers.

Caldwell said: “In particular, gold has shown its worth as a safe haven asset that behaves differently to equity markets. However, while it ultimately proved to be short-lived, the volatility that played out for silver and gold in late January serves as a reminder that the prices of both precious metals can fluctuate rapidly.”

ii’s most-held SIPP fund choices for both accumulation and drawdown show plenty of appetite for growth assets – with global funds proving most popular.

“Global funds, both those actively managed and those that track the global market return, are potential core holdings that investors can tuck away with confidence due to the diversification on offer,” said Caldwell.

“In addition, due to their flexibility, global funds have the ability to provide greater levels of protection versus equity funds focused on a particular region or part of the market, such as smaller company shares.”

Tens of thousands of self-invested personal pension (Sipp) plans with property holdings could land their beneficiaries with an inheritance tax (IHT) nightmare after new rules come into effect next year.

Loved ones may not have enough time to sell commercial property assets held in the more than 50,000 plans within a crucial six-month HMRC deadline, warns financial firm Bowmore Financial Planning.

Unused pension funds, including those from Sipps, will be subject to IHT from April 2027, as announced by the chancellor Rachel Reeves in the 2024 Autumn Budget.

However, plans with commercial property holdings could leave their beneficiaries scampering to find cash to pay IHT bills upon the owner’s death.

Figures obtained from the Financial Conduct Authority (FCA) via a Freedom of Information request by Bowmore reveal there are currently 54,387 Sipp plans that hold commercial property.

Commercial property includes offices and industrial and retail units. Sipp owners can invest in a commercial property fund, which pools money from multiple investors to buy and sell properties through an investment manager.

The money in a Sipp can also be used to directly buy commercial property, with any rental income earned from it exempt from income tax.

Why commercial property in Sipps poses an IHT risk

Commercial property is a relatively illiquid asset, meaning it can be hard to sell quickly, unless you drastically lower the price.

IHT is normally due within six months of someone’s death. But Bowmore warned that, from April 2027, beneficiaries may struggle to sell commercial property in order to raise liquidity to foot the IHT bill fast enough to meet this deadline.

Payment plans can be agreed with HMRC if the six-month deadline is missed, but interest will accrue on any unpaid tax.

John Clamp, financial planner at Bowmore, said: “Introducing IHT on pensions fundamentally changes the risk profile of holding commercial property inside a Sipp.

“These assets were never designed to be accessed quickly, and with the changes to IHT rules families could suddenly find themselves trying to raise a six-figure tax bill without the liquidity to do so."

A Treasury spokesperson said: “We continue to incentivise pension savings for their intended purpose of funding retirement instead of being openly used as a vehicle to transfer wealth – more than 90% of estates each year will continue to pay no inheritance tax after these and other changes.”

What should Sipp owners invested in commercial property do?

Clamp said one option is a ‘Whole of Life’ (WOL) insurance policy.

These policies pay out a guaranteed lump sum upon someone’s death, which can be used by beneficiaries to pay an IHT bill and prevent them from having to sell assets, like commercial property, instead.

You will have to pay the insurer for one of these policies, but it could prove more cost-effective than having to rush through the sale of commercial property.

Another is by reducing the value of your estate by spending more of your money so any eventual IHT bill is lower and the sale of any commercial property by your beneficiaries is not needed.

The rules can be incredibly complex, Clamp added, so it’s worth seeking advice from a financial adviser.

Retirement income today is rarely generated from a single source. It is typically built from a combination of the state pension, workplace or personal pensions, and other assets, each playing a different role.

Understanding how these different pension and non-pension income streams work – and the risks attached to each – can help you approach retirement with clearer expectations, financial advisers say.

Middle-aged Brits are sleepwalking into retirement without a plan, and time is running out, a survey has warned. Retirement income options are not being considered by 73% of 45-60 year olds, according to the study by pension provider LV.

A third (33%) of respondents to the survey aged 45 to 60 said they are unaware of financial products or strategies available to help protect their retirement income or boost their pension savings.

Sue Allen, chartered financial planner at Chester Rose Financial Planning, said: “When you retire, one of the key questions is how you will take an income. Many people find they spend more at the start of retirement as they enjoy their newfound freedom and tick off bucket-list experiences.

“Once early retirement has passed, your spending may settle down, but you might also want to prepare for higher costs in your later years in case you need to pay for care. Setting out your retirement goals could help you understand how to create an income that suits your lifestyle at different points in time.”

We look at the different retirement income options – like the state pension, defined benefit pensions versus defined contribution pensions, workplace pension and SIPPs as well as annuities, cash savings accounts, ISAs and property rental income – and how they can work together to fund your later years.

State pension – a baseline income

The state pension provides a guaranteed, inflation-linked income for life and forms the baseline of retirement income for most people.

The full new state pension (for most post-2016 retirees) is now £230.25 per week for 2025/26, or £11,973 per year, while the full basic state pension (for those born before April 1953) is £176.45 weekly – amounting to £9,175.40 a year – both increased under the triple lock, with payments made every four weeks.

Eligibility and amounts depend heavily on National Insurance contributions, requiring 35 years for the full new state pension and around 30 for the basic. You can begin claiming the state pension at 66, but the state pension age is rising.

Jude Dawute, managing director at financial advice firm Benjamin House, said: “While it provides an important level of security, the state pension on its own is generally designed to meet basic living costs, rather than support a broader retirement lifestyle.”

Pensions UK, a trade body, estimates a single person household needs £13,400 a year post-tax income to cover the basics in retirement – excluding housing costs – so while most of this will be covered by the new state pension, some other savings or income will be needed besides.

We look at how much you need for a comfortable retirement in a separate article.

Defined benefit pensions – predictable income

Defined benefit (DB) pensions provide a pre-determined income for life, usually payable from a scheme’s normal retirement age (commonly 60 or 65). The income is not affected by market movements and continues for as long as you live. You can usually take 25% tax-free as a lump sum, with the rest of the income taxed at your marginal rate.

DB pensions are typically used to meet core, ongoing expenditure, because the income is known in advance and often includes inflation protection.

So if a person, aged 65, had a defined benefit pension paying £18,000 per year and gets the full new state pension of £11,973 per year, their total guaranteed retirement income would be £29,973 per year.

“This income would be paid regardless of investment conditions or how long the person lives, providing a stable base from which other retirement decisions could be made,” said Dawute.

Defined benefit pensions are usually inflexible regarding how income is taken and at what level. However, many allow a tax-free lump sum in exchange for lower income.

Allen, from Chester Rose Financial Planning, said: “The decision whether to take a tax-free lump sum or not needs careful consideration, as once taken, it cannot be reversed. In most cases, maximising guaranteed income is preferable unless the lump sum is genuinely required.”

Defined contribution pensions – flexibility and risk

Defined contribution pensions work differently to defined benefit pensions. Instead of providing a guaranteed income, they build up a pension pot, which can usually be accessed from age 55 (rising to 57), with no requirement to retire at a fixed age.

This flexibility allows income to be tailored to individual circumstances, but it also means retirees remain exposed to several risks.

“Unless funds are converted into guaranteed income – by buying an annuity – DC pensions remain invested. Their value can therefore rise or fall with markets,” Dawute said.

A key consideration is sequence risk, he pointed out. This is the impact of taking withdrawals during periods of poor market performance, particularly early in retirement.

Dawute said: “Losses at this stage can have a disproportionate effect on how long a pension pot lasts. Diversified portfolios can help manage volatility, but investment risk cannot be removed entirely.”

Consolidation, transfers and SIPPs

Many people reach retirement with multiple defined contribution pensions, built up over different jobs.

Consolidation brings these pensions together, often into a self-invested personal pension (SIPP) or a workplace pension scheme. This can make it easier to understand your overall retirement income, manage investments consistently, and plan withdrawals.

“In some cases, individuals may also explore pension transfers from older arrangements and defined benefit pensions into newer ones with greater flexibility,” said Dawute. But he added where protected benefits exist – like guaranteed income rates – these decisions require careful consideration.

Turning defined contribution pensions into income

Deciding how much to withdraw from your pension can seem like a balancing act and there are often many factors you need to consider.

Allen said: “For example, when you access your pension, you can usually take up to 25% as a tax-free lump sum. You might be tempted to withdraw the money to travel, renovate your home, or indulge your hobbies. However, withdrawing a lump sum at the start of retirement could affect your long-term finances.

“You don’t have to take a lump sum at the start of retirement to benefit from the tax-free money – you may spread it out over several withdrawals, for instance,” she said.

Option 1: Flexi-access drawdown – adaptable income with market exposure

Drawdown allows pension funds to remain invested while income is taken as needed. It is often used to support discretionary spending, such as travel or irregular expenses, and to keep funds accessible. You typically take your 25% tax-free cash upfront.

Drawdown income is not guaranteed and is exposed to:

• Market volatility
• Inflation risk if withdrawals rise faster than investment growth
• Longevity risk if withdrawals continue for longer than expected

When you are in drawdown the sequence of your investment returns is of vital importance. In the scenario shown below, which shows a retiree with a portfolio of £100,000, taking annual withdrawals of £5,000, their portfolio could be 22% worse off if they experienced losses in the first two years of retirement, compared to having these same losses in years four and five.

Source: Quilter. Table shows a 22% difference between portfolio 1 and portfolio 2 after five years

Option 2: UFPLS – simplicity and tax considerations

Uncrystallised funds pension lump sums (UFPLS) allow individuals to take payments directly from their pension, with 25% tax-free and 75% taxed as income each time, unlike flexi-access drawdown where the whole tax-free amount is usually taken upfront.

It's a way to get money bit-by-bit without setting up a full drawdown plan or triggering the money purchase annual allowance (MPAA) on the first withdrawal and allowing the rest of your fund to keep growing.

UFPLS is commonly used for:

• One-off expenses
• Early retirement bridging until the state pension or other retirement income kicks in
• Smaller pension pots

Dawute said: “Because each withdrawal is taxed, timing and frequency can significantly affect your overall tax position.”

Option 3: Annuities – guaranteed income and annuity risk

An annuity converts pension savings into a guaranteed income, usually payable for life.

People often use annuities to cover essential spending, reducing reliance on investment markets and removing the risk of outliving their savings.

“However, annuities involve annuity risk – once an annuity is purchased, the income is typically fixed based on market conditions at that time and cannot be changed later,” said Dawute.

Inflation risk and annuities:

• Level annuities start at a higher income but lose purchasing power over time
• Inflation-linked annuities protect real income but begin at a lower level. This reflects a trade-off between higher initial income and longer-term protection against rising prices.

Other sources of retirement income

Drawing income from a range of assets can help diversify risk and improve financial resilience in retirement.

Matt Finch, director of wealth management at Bentley Reid, pointed to some non-pension assets that can boost your retirement income:

ISAs

“ISAs offer highly tax-efficient income, with withdrawals, income and growth free from tax. In many cases, it can be advantageous to utilise taxable income first to maximise allowances before drawing on ISA wealth,” said Finch.

Cash

Cash savings can provide liquidity and short-term security, reducing the need to sell long-term investments during periods of market volatility, he said.

Rental property income

Finch said: “Rental income can continue to provide a steady income stream in retirement, although it remains taxable and carries ongoing management responsibilities, which should be considered in the context of lifestyle objectives.”

Part-time work

“Part-time or consultancy work can offer a phased transition into retirement, maintaining income and reducing reliance on pensions in the early years,” he added.

Combining pension income streams

The most effective retirement income plans combine guaranteed income, flexible withdrawals and long-term growth, according to the experts.

Chartered financial planner Sue Allen said: “They are built around spending needs, health and attitude to risk – and are reviewed regularly as circumstances and tax rules change. Retirement income planning is not about finding the perfect product. It is about structuring your money so it supports the life you want for as long as you need it.”

A 65-year-old with a full state pension, NHS pension, a SIPP valued at £400,000 and an ISA of £100,000, who is continuing to work until 67, could have a retirement income portfolio that looks something like the below, she said.

In early retirement, income is topped up from the SIPP and ISA to support higher spending. Once the state pension and NHS pension payments begin, reliance on the SIPP reduces.

Later in life, income needs decline further, and guaranteed income covers most spending, while modest withdrawals continue to provide flexibility.

“The aim is not to maximise income early on but to keep the income sustainable and tax-efficient,” Allen said.

Pension savers are choosing passive funds and individual shares for their portfolios, and taking bigger tax-free sums earlier from their pots, as they navigate a changing retirement landscape.

This is the finding of a large pension study by Interactive Investor (ii), the UK’s second biggest investment platform with more than 500,000 customers.

It looked at the behaviour of its self-invested personal pension (Sipp) investors both now (during the second and third quarters of 2025) and in the past.

The study shows that passive funds are in fashion, with allocations to exchange-traded funds (ETFs) increasing for those saving for retirement and those withdrawing money from their Sipps.

Interestingly, it also found that customers bought more individual shares, with allocations at their highest level in three years (since the first quarter of 2022).

However, pension investors also enjoy low-risk, cash-like returns. The most popular fund among ii’s customers is the Royal London Short-Term Money Market Fund. Indeed, five of its ten top-selling funds last month were money market funds.

Money market funds have been particularly popular over the past year or so, as investors sought high interest funds off the back of a high Bank of England base rate (though the base rate is now declining).

Over at AJ Bell, another investment platform, the Royal London money market fund has been its fourth best-selling fund so far in 2025. Cash funds and money market funds also dominate the most-bought investments on the Fidelity platform.

ii noted in its Sipp study that retired customers taking cash out of their portfolios are choosing money market funds: a money market fund is now the most popular holding for customers in pension drawdown for the first time.

In terms of investments that have fallen out of favour, demand for investment trusts is cooling. Investing in trusts reduced for customers saving into their Sipps, and even further for those in drawdown, according to ii.

A changing pensions landscape

The findings come as pension savers grapple with a raft of upcoming changes. Pensions are set to be included in inheritance tax calculations from April 2027. A year later, in April 2028, the age at which you can start withdrawing money from your pension will rise from 55 to 57.

Meanwhile, the Autumn Budget announced that salary sacrifice pension contributions above £2,000 will face National Insurance from April 2029.

The run-up to last month’s Budget caused a rush among older pension savers to grab their tax-free cash in case the chancellor reduced it or introduced a cap. In the end, no changes were announced.

Interactive Investor’s study shows that customers took a slightly earlier and bigger tax-free lump sum on average this year, compared to its previous Sipp study, possibly due to worries over the Budget.

Looking ahead, Kyle Caldwell at Interactive Investor thinks investment trusts could come back into fashion.

He says that high interest rates have reduced demand for investment trusts while boosting demand for gilts and money market funds. “Another factor at play has been the continued strong performance of global stock markets, which has led some investors to seek out global ETFs, which provide the return of the market for a low fee.”

Caldwell notes: “While time will of course tell, the coming years could see increased appetite for investment trusts. Interest rates are falling, which could see investors increase risk in their pursuit of growing money in real terms given that this will dent the income attraction of lower risk assets like cash and bonds.”

Fears of further pension reforms in chancellor Rachel Reeves’s Autumn Budget are fuelling a surge in self-invested personal pension (SIPP) savers withdrawing their money, according to data from one of the UK’s largest investment platforms.

Bestinvest said its DIY pension savers made a third more (33%) demands for their money in September, compared to the previous two-year average.

This was largely driven by those aged 55 and over accessing their 25% tax-free cash lump sum, the investment platform said.

The size of the pension income withdrawals from SIPPs, known as a pot for life pension, also jumped in September – by 146% – compared to the two-year average for the same month in 2023 and 2024, as retirees cashed out.

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “Saving into a pension is a long-term financial goal that requires commitment from a saver but also a stable and consistent approach from the government.

“Incessant speculation around pension changes can have huge repercussions, as it can discourage savers from topping up their retirement pots at a time when they’re already being criticised for not contributing enough.”

Why are investors switching to ISAs?

Uncertainty around the taxing of pensions is seemingly already prompting fewer people to use the traditional retirement product to save for their golden years. Contributions into SIPPs slowed to increase by just 3% last month, Bestinvest reported.

Meanwhile ISA contributions rose by 38% in September compared to the previous two-year average for the same month on the online investment platform. The move is thought to reflect savers reconsidering their retirement saving habits now unused defined contribution pensions will come under the scope of inheritance tax from April 2027.

Though ISAs are also subject to inheritance tax, unlike pensions, they can be spent at any time.

Looking back over the three months to the end of September, SIPP contributions at Bestinvest are down by 24% compared to the previous two-year average for the same period as opposed to ISA contributions which rose by 10%.

We compare ISAs vs SIPPs in a separate article.

“Ultimately, both ISAs and pensions are valuable tools for those looking to build long-term, tax-efficient savings in the UK though they have different limitations,” said Haine.

“An ISA has a tax-free allowance of £20,000 that cannot be carried forward to the next financial year, but the money held within an ISA is not taxable when it is withdrawn.

“Pensions have a higher annual allowance (AA) and the benefit of carry forward rules where savers can backdate contributions, up to their AA, over the previous three financial years – useful for those who receive a windfall such as an inheritance or the sale of a business.

“But a pension is taxable at the withdrawal stage and will also become subject to IHT – like an ISA – in 18 months’ time.”

Cuts to tax-free cash

One of the biggest concerns centres on rumours the chancellor may reduce the maximum amount pension savers, aged 55 can over, can withdraw tax-free from their retirement pots. Currently savers can access 25% of their pension tax-free, up to a maximum of £268,275 – a ceiling introduced by former Conservative chancellor Jeremy Hunt.

Similar speculation ahead of last year’s Autumn Budget triggered a wave of withdrawals from pensions, with some savers later regretting their decision after realising they did not need the cash immediately, and no changes were made.

This year, rumours of further pension tax changes appear to be having a similar effect, compounded by the fact that pensions minister Torsten Bell had previously advocated reducing tax-free cash while running the Resolution Foundation, a think tank.

Potential changes to gifting rules

With pensions brought under the scope of inheritance tax (IHT) in the chancellor’s maiden fiscal statement last year, many DIY investors have radically changed their approach to pension saving – choosing to withdraw pension funds to spend or gift rather than risk their beneficiaries being hit with a heavy tax bill on their death.

Speculation around potential changes to gifting rules – including the possibility the seven-year rule may be extended, or a lifetime gifting cap introduced – is also driving the significant behavioural shift of more people withdrawing more from their pensions before the Budget to avoid inheritance tax.

Haine said: “At Bestinvest, we’ve seen a surge in tax-free cash requests as we edge closer to the Autumn Budget, echoing the trend seen ahead of the chancellor’s first fiscal statement last year.

“Taking tax-free cash prematurely as a knee-jerk reaction to a possible policy change can undermine retirement plans and prove to be tax inefficient. Moving a large sum out of a tax-protected wrapper, like a pension, into a taxable environment such as a bank or building society savings account can counteract the gain someone makes from making the tax-free withdrawal in the first place.

“From that point, interest, income or capital gains could be liable for tax unless the money falls within an existing tax-free allowance, such as the personal savings allowance, or is transferred into another tax-efficient vehicle such as an ISA.”

Can you reverse tax-free cash withdrawal?

Anyone considering taking large sums from their pension would be wise to take financial advice before they make any decisions. Worryingly, 70% of people do not, according to Financial Conduct Authority data from the 2024/25 tax year.

“Without a clear picture of their retirement funding strategy, they cannot assess whether accessing their tax-free pension lump sum now makes sense – or whether it’s better to leave the money invested for longer or only take a portion of the 25% tax-free element,” said Haine.

Decisions made in haste cannot always be reversed. While some providers previously allowed savers to cancel tax-free lump sum withdrawals within a certain cooling-off timeframe, HMRC and the FCA have recently made clear that providers should not permit savers to reverse their decision. This means once the money is taken, the decision cannot be undone.

When John Middleton’s financial adviser told him in no uncertain terms that at the age of 34, his pension pot of £7,000 was nowhere near where it should be, it was the wake-up call he needed.

“It scared the life out of me,” said John, a project manager from Gloucester. “Her warning portrayed this mental image of us scrabbling around looking for where the next meal was coming from in our dotage.”

Determined to build up a secure and comfortable retirement for his family, John was spurred into action.

Now, aged 53, John has amassed pension savings of £420,000 in a self-invested personal pension (SIPP).

We look at how he did it, and the lessons he's learnt.

1. Starting meaningful pension contributions

One of the first companies John worked for didn’t offer a pension scheme. In his twenties and saving for a first home with his then-fiancée Julie, thoughts of retirement and setting up a private pension just weren’t a priority.

When he did finally join a company with a pension scheme, John and his wife Julie were expecting their first child, so he paid in the minimum amount to trigger a contribution from his employer.

“We put whatever money we got into life,” he said.

“But if there’s one thing my current self could go back and say to my younger self, it would be to stick £50 or £100 a month into your pension – the power of compounding will blow your mind and you won’t miss it.”

The frank conversation with the financial adviser, however, had put things into perspective.

At the time, the couple had had their second child and were paying out £500 a month in nursery fees. When the children started school in 2010, John diverted the cash into his pension, which was matched by his firm – marking the start of a serious attitude to saving.

We look at the average pension pot by age in a separate article.

2. Growing confidence as an investor

Having witnessed the dot-com bubble and subsequent crash of the early 2000s, which sent the inflated price of technology shares tumbling, John admits he was scared of the stock market for years after.

But when a number of colleagues began to open ISAs some years later, John came around to the idea of investing. Keen to understand more about the stock market and build his confidence, he began to read up about investing and put small amounts of cash into standard FTSE 100 shares, unit trust funds and investment trusts.

He didn’t know it at the time, but the ISA was the training ground for his future SIPP investments.

Then in 2014, John decided to put his retirement savings to date under the microscope.

Using an Excel spreadsheet, he began to work out what his income might look like when he was 60, 65 and 70 years old. “I wrote it all down so I had some sort of frame of reference to start thinking about what I can do to close the gap.”

When he saw his projected earnings, it was the first time John realised the extent of the cautious nature of his company pension.

3. Ditching the default company pension for a SIPP

After a decade of saving £70,000, the total of both his own and his employer’s contributions, plus tax relief, into his company’s default pension scheme – the lowest risk scheme offered by the provider – his pot had grown by 20% to £84,000.

“I looked at the forecasts for my pension, the safest one, and compared it to the performance of the medium risk and adventurous one and the differences were unbelievably huge.

“What I didn’t get was that the burden of the decision was solely with me; none of these companies are going to say, ‘Hey, you should do this’.”

Over 90% of employees who join their workplace pension stay in the provider’s default fund, says Rachel Vahey, head of public policy at investment platform AJ Bell.

“The default investment fund is designed to fit the needs of thousands of people, so it often takes a cautious approach,” she added.

“If you are happy taking on a bit more risk for some potential reward, then consider the other investments on offer from the workplace pension. Or, you can set up a SIPP to accept any additional contributions as well as consolidate your old pensions into it.”

A SIPP offers a wider choice of investments for you to choose from.

John transferred the whole value of his company pension into a SIPP and decided to take a hands-on approach to growing his retirement savings.

He started by looking at the top 10 funds and shares other users of his SIPP platform had invested in, displayed on the platform’s website, and invested a portion of his portfolio in each.

Using specialist websites such as Morningstar and Trustnet, he monitored his investments’ performance and looked at their fund rankings for more inspiration.

Following the collapse of star fund manager Neil Woodford’s Equity Income fund in 2019, John turned his back on “rockstar fund managers” and looked at the areas of the world or sectors that were performing well and chose big passive funds tracking those markets, choosing to invest up to 4% of his pot in each, which he planned to review after five years.

The United States was one of John’s favoured countries, but he has since become frustrated with president Trump’s administration and has begun pulling money out of the US stock market and redirecting his money into Europe, the UK, Japan and South East Asia outside of China.

By the time John transferred his SIPP to a cheaper provider in 2024, the value of his pot had reached £400,000.

4. Using salary and a redundancy pay out

Shrewd investment choices alone didn’t lead to the 376% rise in the value of his pension since transferring the money into a SIPP 10 years ago. Several smart decisions to inject cash sums into his pot when the opportunity arose accelerated its growth.

Despite moving his savings from the company pension to a SIPP, John still wanted to take advantage of the free contributions his employer would make if he paid into its scheme.

He began receiving bonuses and was told by his firm that if he used the cash to make Additional Voluntary Contributions (AVCs) of up to £5,000 per bonus, it would inject a further £1,000 into his pot. He also agreed to a small salary sacrifice payment of around £75 a month, in addition to his regular contributions from his net pay.

Periodically, John would transfer the company pension savings over to his SIPP.

The event that had the most significant impact on the value of his pension, however, was receiving a redundancy payout.

“The redundancy package of £70,000 was very good and to go with it, they paid for me to have some good financial advice,” he said. “The adviser explained how I could maximise my redundancy and take advantage of pension contribution allowances.”

The biggest lessons on the pension journey

John has always kept track of his pension pots when he has moved to a new company by transferring the sums into his SIPP, which Vahey says is a smart way of keeping an eye on your pension progress.

“Having one pot – as well as your workplace pension – means you can see how much money you could have built up by retirement,” she added. “This allows you to determine how much more you need to save to keep on track to meet your retirement objectives.”

John says he did not ever imagine he would end up with a private pension which is now worth £420,000.

He says his biggest lesson was using his redundancy wisely.

“I can’t emphasise enough the impact investing my redundancy package has had on the value of my pension, it’s probably doubled its value.

“If you’re being paid redundant and you don’t need the money for something immediate, give some serious thought to investing it for the future.”

Hargreaves Lansdown has slashed its platform fee for early-bird investors opening a new stocks and shares ISA or self-invested personal pension (SIPP).

The annual charge will drop by 40%, from a maximum of 0.45% to 0.27%, for customers contributing or transferring in at least £10,000.

The special deal is available to those opening and funding an account between 15 April and 30 June 2025.

In addition, the UK’s biggest investment platform has launched another offer, whereby customers setting up a new direct debit in a stocks and shares ISA or SIPP by 30 June 2025 will get their account fee back as cash.

Paul Dimambro, director of pensions, investments and ISAs at Hargreaves Lansdown, comments: “After a whirlwind couple of weeks with significant market shifts [thanks to president Trump’s tariffs] investors would be forgiven for forgetting a new tax year has started.

“That’s why we’ve launched two new offers, aimed at giving people an extra incentive to take the first steps towards their financial freedom.”

The special offers come at a time when other investment platforms are running pension and ISA transfer offers worth up to £5,000 in cashback to try and entice new customers.

But, the cheaper fee also comes as competitor Vanguard has hiked its charges with the introduction of a £4 monthly fee at the end of February.

We look in more detail at how the special offers work, and whether a 0.27% account fee makes Hargreaves Lansdown competitive.

How do the special deals work?

Investors opening a new Hargreaves Lansdown stocks and shares ISA or SIPP with £10,000 or more will benefit from a 40% discount off the platform fee for six months.

This means a 0.27% charge will be in place from 1 July 2025 to 31 December 2025 (capped at £2.25 a month for the ISA, or £10 a month for the SIPP). It will then revert back to 0.45% (capped at £3.75 for the ISA, and £16.67 for the SIPP).

However, customers that only invest in funds may pay an even cheaper fee. Fund investors with accounts worth less than £250,000 who meet the special offer criteria will pay the reduced fee of 0.27%, but those with larger portfolios will pay less.

Investors with accounts valued at between £250,000 to £999,999 will pay 0.15% (down from 0.25%). Those with between £1,000,000 and £1,999,999 will be charged 0.06% (down from 0.1%). Meanwhile, investors with more than £2 million in a fund account will continue to pay nothing.

Opening and contributing to the account must happen between 15 April and 30 June 2025, to get the cheaper deal.

The second offer is for early-bird regular savers setting up a new direct debit instruction between 15 April and 26 June 2025.

They will get their account charges of 0.45% returned to them as cashback. This will be paid into their Loyalty Bonus Accounts on 26 July 2026, on satisfying certain conditions.

These include that the direct debit must be at least £25 per month, and must be kept in place, for the same value or higher, for no less than 12 months.

How does Hargreaves Lansdown’s lower fee compare to its competitors?

A 40% discount sounds like a great deal, but Hargreaves Lansdown is known to be one of the more expensive platforms, so how does the lower charge shape up versus its rivals?

We asked the lang cat, a financial consultancy, to crunch the figures to see which platforms work out cheapest.

It says that for someone with a small £15,000 ISA portfolio invested in funds, Hargreaves Lansdown’s annual fee will drop from £68 to £54, thanks to the reduced charge for six of the 12 months.

A £54 platform fee makes it one of the cheapest platforms, according to lang cat’s analysis of 13 platforms.

Halifax Share Dealing is the cheapest, at £36. But HL comes in lower than Fidelity, Interactive Investor, Bestinvest and Charles Stanley Direct.

What about bigger portfolios? For an ISA worth £100,000, Hargreaves’s fee falls from £450 to £360, meaning it is no longer the most expensive for portfolios this size. Again, these HL charges reflect the reduced fee for six months.

It is now more comparable to some of its competitors, such as Bestinvest (£400) and Fidelity (£350).

However, Vanguard and Interactive Investor are much cheaper, at £150 and £144 respectively.

For an ISA investing purely in investment companies (rather than funds), HL’s fee is just £36 a year, regardless of the size of portfolio, because a monthly cap kicks in.

So, HL’s special offer makes the platform joint cheapest with Halifax Share Dealing out of the 13 analysed. In contrast, Vanguard charges £48 a year for an ISA worth £25,000 or £50,000; the cost rises as the portfolio gets bigger. AJ Bell’s fee is £38 or £42 depending on the amount invested.

At the other end of the scale, Bestinvest, Willis Owen and Close Brothers charge anywhere from £38 to more than £1,000 for the biggest portfolios.

Chris Bredin, a consultant at the lang cat, tells MoneyWeek: “While any reduction in price is welcomed to lower the cost of investing, it’s important to consider what the cost becomes after the offer period expires.

“An investment of £50k with Hargreaves Lansdown in funds, within an ISA is charged at 0.27% for the offer period – this increases to the regular rate of 0.45% when this expires.”

In terms of SIPPs, the analysis shows a similar picture. Someone opening a SIPP, contributing £100,000 and investing purely in funds will face an annual charge of £360 (down from the usual £450). This is cheaper than Barclays and Bestinvest (both £400), but more than Vanguard (£150) and Interactive Investor (£156).

A £100,000 SIPP investing only in investment companies would pay £160 a year (compared to the full cost of £200), making it the seventh cheapest of 13 platforms.

Bredin adds: “Investors need to take other factors into account when looking at how platforms compare on cost. The type of asset being invested in, how often you’re likely to trade, which wrappers you use are all examples that can affect pricing – alongside sums invested.

“Fees are only one part of the picture, of course. Things like how much help you need picking investments, your impression and trust levels of a brand are some of the many other factors that will drive what is a personal choice based on your own set of circumstances.”

Tax-free income is getting vanishingly rare as allowances have been repeatedly squeezed by successive governments. But Britain’s favourite tax-free perk seems virtually untouchable – the 25% pension tax-free lump sum.

Most savers can put up to £60,000 a year into a pension without having to pay tax – known as the annual allowance – and can access their defined contribution (DC) pot from age 55 (although this is rising to 57 from 6 April 2028).

When accessing your pension for the first time, you can also get up to a quarter of your pot completely tax-free, known officially as the pension commencement lump sum (PCLS).

Tax-free pension cash acts as a powerful psychological anchor for many over-55s as they approach retirement, according to research from the Standard Life Centre for the Future of Retirement.

Two-fifths (42%) said they either plan to take the full lump sum in one go or have already done so, in the research conducted among 2,000 UK adults aged 55-70 with a defined contribution pension in February 2026.

Among those who are planning to take the 25% tax-free lump sum in one go, more than two-fifths (44%) say it will mark the start of their journey towards retirement.

A third (32%) say it will give them a sense of financial security and a fifth (21%) say they view it as a separate pot of money entirely.

However, Tom Selby, director of public policy at AJ Bell, warned it might not be right for everyone. He said: “Just because you can do something doesn’t necessarily mean you should.”

“Before taking your tax-free cash, make sure you have a plan for the money. If, for example, you take your full entitlement out and then just shove it in a bank account, the money will risk being eaten away by inflation over time,” he added.

We look at how much you need to retire in a separate article.

How does the 25% pension tax-free cash work?

Pension income, including both the state pension and private pensions, is usually taxed at your marginal income tax rate – 20% for basic, 40% for higher, and 45% for additional rate taxpayers.

But a special privilege of pensions is you can take some of the money free of income tax, an attractive reason for contributing to pensions in the first place.

If you have private pensions or workplace pensions – as most employed people now do – you can take up to 25% of the total value of all your pension pots completely tax-free. You can either take this all in one go as a lump sum, or in instalments.

What are the pension tax-free allowances?

Usually you would pay income tax on pension income over the personal allowance, currently £12,570 per year.

But when you access your pension you can take up to a quarter of your pot tax-free.

For most people, the maximum tax-free cash they can take over their lifetime is £268,275.

When can I take my tax-free pension cash?

You can take your tax-free pension cash from age 55 currently. This is rising to 57 in 2028. But, said Selby, “there are very good reasons to hold off doing so if you can”.

“Perhaps most importantly, the earlier you start taking an income, the longer that income will need to last – and the less opportunity your fund, including the tax-free cash entitlement, will have to enjoy long-term investment growth.”

To illustrate, AJ Bell gives the example of Sarah, who has a £200,000 pension pot at age 55. If she decides to access her retirement pot as soon as she can, Sarah could get £50,000 of tax-free cash, with the remaining £150,000 available to deliver a taxable income.

If we assume Sarah chooses to keep her fund invested through pension drawdown and enjoys investment growth of 4% per year after charges, she could take an annual income of around £7,600, with her fund exhausted by around their 90th birthday.

But Selby said: “If, however, they held off accessing their pension until age 65 and enjoyed 4% annual growth during that period and in retirement, they could generate around £74,000 of tax-free cash and enjoy an income of around £13,300 a year until age 90.”

Can I take my pension tax-free cash in instalments?

You don’t have to take your pension tax-free cash all in one go – you can choose to take your tax-free cash in chunks instead.

You can do this by just taking ad-hoc lumps of tax-free money.

Or by taking some of your withdrawn portion as tax-free cash (25%), with the rest (75%) going into drawdown taxed at your usual rate of income tax when you take it as income (until then it stays invested). This is known as uncrystallised funds pension lump sum (UPFLS).

Take, for example, someone with a £100,000 pension who needs £5,000 of tax-free cash. Rather than taking their entire £25,000 tax-free cash entitlement all in one go, they could just commit £15,000 to drawdown (75%), which would then release the £5,000 tax-free cash they need (25%).

This would leave the remaining £80,000 – including the 25% tax-free cash entitlement attached to it – free to grow over the long-term.

This process of taking pension 'slices' can then be repeated as many times as you wish until your total tax-free amount is used up. But using UPFLS will trigger the money purchase annual allowance (MPAA), limiting how much you can put into your pension per year to £10,000.

The process of UPFLS pension slicing should be relatively straightforward. You’ll just need to tell your pension provider how much of your pension pot you want to commit to drawdown and as a result how much tax-free cash you would like to take. Your provider should already have details of the bank account they should pay it into.

Committing to drawdown doesn’t mean you have to access your taxable income immediately – in fact, it’s often sensible to drip feed withdrawals slowly as you need the money to keep your income tax bills as low as possible.

If your provider doesn’t offer drawdown and this is your preferred retirement income route, you may need to consider transferring your pension to a low-cost platform that allows you to take income in this way.

Before transferring, check you won’t be hit with exit charges or lose valuable guarantees attached to your pension plan. Your existing provider should be able to tell you if this is the case or not.

What do I do with my pension after taking the tax-free cash?

If you do decide to take out your 25% tax-free lump sum, one of the issues to think about is what you do with the other 75%.

You don’t need to take all of your pension in full to access your tax-free cash – but many people do and it costs them.

The Financial Conduct Authority (FCA), the watchdog, has found more than a third (35%) of people who cashed out their pension in full put the balance into a current account or cash account.

This is typically not the most sensible option. It makes sense to keep the money invested and growing – tax-free – inside your pension, which will provide you with a bigger financial war chest to support you in retirement.

Does taking your pension tax-free cash stop you using carry forward allowances?

Carry forward rules enable you to mop up any unused annual pension allowances from the three previous years once you have maximised your current tax year’s allowance – £60,000 for most people – as long as you have sufficient relevant earnings in the current tax year.

Andrew King, pensions technical specialist at Evelyn Partners, said: “Taking a tax-free cash lump sum does not prevent you from making use of carry forward – unless you have triggered the money purchase annual allowance (MPAA) by taking other funds out as well as the tax-free cash.”

The MPAA limits the amount you can put back into your pension to £10,000 a year once you have started taking an income from it beyond just taking tax-free cash. If you take your pension tax-free cash via UPFLS this will trigger the MPAA.

However if by using carry forward you exceed the limits set out in the pension recycling rules then there is a chance you could be penalised. “For instance, making a very big one-off contribution using carry forward allowances and then taking tax-free cash shortly after could risk a penalty,” said King.

Pro and cons to consider when taking tax-free cash

The tax-free lump sum is often seen as a tangible reward after a lifetime of saving. Many people mentally separate the lump sum from the rest of their pension, treating it as a bonus earmarked for big financial decisions.

Often people prioritise simplifying their finances before retirement, using the lump sum to reduce debt or pay off a mortgage in order to create a “clean slate”. It’s worth weighing up the pros and cons before you act.

Pros

• You can spend the money as you wish and pay no income tax on it
• This can include paying down debt like mortgages or other loans
• You can take the 25% tax-free in instalments, leaving more of it invested to continue to grow tax-free in your pension

Cons

• Taking the full 25% pension tax-free lump sum without a plan and sticking it in a low interest savings account can mean inflation eats away at your money
• You may have to pay savings tax on interest if you put the full lump sum in a non-ISA account
• You will have less of a total pension pot with which to buy an annuity – meaning if you do buy an annuity later, you’ll probably get less annual income

According to Standard Life’s polling, the majority (90%) of 55-70-year-olds say they want their finances to be as simple as possible before retirement. The research also found that more than two-thirds (68%) feel confident about deciding how and when to take their tax-free cash.

The intended use of tax-free cash varies, but the findings suggest many approach it with a clear purpose in mind. More than a quarter of those who plan to take a lump sum (28%) expect to use it for an expensive treat such as a car or holiday, while the same proportion plan to use it as initial income for day-to-day expenses before they access the rest of their pension.

More than one in five (22%) plan to reinvest it elsewhere, and 17% want to reduce their working hours and top up their income with it. Less than one in 10 (9%) say they have no particular use in mind.

Rachel Reeves’s announcement on Budget Day that pensions would fall into the scope of inheritance tax was not entirely surprising.

There had been speculation this could happen, and it was perhaps a better outcome than some of the other pension shock rumours. These included slashing the amount of tax-free cash a retiree could take, or cutting pension tax relief.

However, now the dust is starting to settle on last week’s Budget, it’s becoming clear how making pension pots liable for inheritance tax could have huge implications for people’s retirement plans - and one that could see bereaved families paying a double tax of up to 67%, or in some cases, as much as 90%.

“Bringing pensions into the inheritance tax regime will have a big bearing on how people approach passing on wealth to their loved ones,” comments Julie Hammerton, managing partner at Hymans Robertson Personal Wealth.

“The order in which people access their long-term savings will likely change. This sequencing is something that those in the fortunate position to have savings will need to get their heads around.”

From a financial planning perspective, the general rule on drawing on your ISAs first in retirement, before pensions, could be turned on its head. Downsizing could become more attractive, and so could annuities.

Ed Monk, associate director at Fidelity International, adds that pension savers “may find they need to reorganise their savings and alter their planned sources of retirement income in order to remain tax-efficient”.

We look at how the chancellor’s inheritance tax (IHT) plans will work in practice. If you’ve built up a large pension pot to pass onto loved ones, should you rethink your retirement strategy, and what are your options to prevent a double death tax whammy?

Pension tax: what was announced in the Budget?

Reeves announced in the Autumn Budget that pension pots would form part of the estate for IHT purposes, meaning bereaved families face paying up to 40% on inherited retirement savings.

The government will bring unused pension funds and death benefits payable from a pension into a person’s estate from 6 April 2027.

According to the Treasury, “bringing unspent pots into the scope of inheritance tax will affect around 8% of estates each year".

This figure may not seem that high, but experts are urging pension savers to check, and potentially change, their retirement strategies to avoid a big tax bill - especially given that slapping IHT on pensions is expected to cost people an incredible £1.46 billion in 2029/30.

How will IHT work on pensions?

IHT only begins to apply when an estate - which includes property, investments, cash and other possessions - reaches £325,000.

This is known as the nil-rate band. Anything over this threshold faces 40% tax, but there are several exemptions that can give you more headroom.

First, money passed to a spouse or civil partner attracts no IHT at all. So, if you leave your pension to a husband, wife or civil partner there will be no inheritance tax to pay - and this will continue to be the case when the new rules come in.

It is possible for families to pass on as much as £1 million with no IHT to pay - this involves passing your nil-rate band to your spouse or civil partner when you die, and then leaving a primary residence (in other words, your home) to direct descendants.

However, if you are not married or in a civil partnership, and do not leave your home to a direct descendent (which includes children, grandchildren, step-children and adopted children), your nil-rate band remains at £325,000.

Currently, pensions do not form part of the saver’s estate for inheritance tax purposes. From April 2027, if your estate breaches your nil-rate band, the surplus is taxed at up to 40% (you get a reduced rate of 36% if you leave at least 10% of your net estate to charity).

So, where 40% inheritance tax is due, £1,000 of pension money would have £400 removed in tax, leaving the beneficiary £600.

Why will we see a “double tax” on pensions?

Beneficiaries also have to pay income tax on inherited pensions, depending on when the pension holder dies.

If death occurs at or after age 75, the pension money is subject to the beneficiary’s rate of income tax.

Monk explains the double tax that will kick in from April 2027: “For example, where IHT is due, £100 of pension money would be subject to 40% IHT, leaving £60. If death occurs after age 75, this money would then be subject to the beneficiary’s rate of income tax. In the worst case this would be 45%, resulting in just £33 being received by the beneficiary - an effective tax rate of 67%.”

The government is consulting on the exact details of how inheritance tax should be paid on pensions; further details are expected next year.

Hammerton adds that the “changes won’t come into effect until close to the end of the current government’s term in office”, meaning there is “a risk these policies could be reversed if a new administration came into power.”

However, experts agree that anyone who thinks their assets may be liable for IHT, or has a large pension pot that they’re not touching because they want to pass it onto a loved one, should start taking action now.

Could a beneficiary really be hit with a 90% tax rate?

There are some families who may find the additional tax burden weighs more heavily on them than others.

In some instances, the addition of a pension fund to someone’s IHT estate will result in them losing the residence nil-rate band (RNRB). This is the tax-free amount of up to £175,000 that can help reduce someone’s IHT liability in respect of residential property they pass on.

"If someone’s estate for IHT purposes exceeds £2 million, the RNRB starts to be reduced. It is reduced by £1 for every £2 over £2 million, meaning someone with an estate of £2.35 million will have no RNRB available to them," comments Chris Etherington, partner at tax firm RSM.

He adds that based on the expected operation of the new pension rules, it is possible that someone with other assets of £2 million and a pension pot of £350,000 could find a high effective IHT rate applies to the pension and overall estate due to the loss of the RNRB of up to 60%.

"If the pension is then withdrawn as income, there could be a further layer of tax applied to the pension funds. An additional-rate taxpayer resident in England, Wales or Northern Ireland would incur tax at a rate of 45% on such funds, whilst a Scottish resident would incur a rate of up to 48%."

According to Etherington, the net result is that a Scottish beneficiary of the estate in these circumstances may only receive as little as £29,906 cash from the £350,000 pension pot. That works out as an effective overall tax rate on the pension pot of 91.46%. An English, Welsh or Northern Irish beneficiary of the same pot could have a net receipt as low as £36,787, representing an 89.49% overall tax rate.

He adds: "The new pension IHT rules are undoubtedly going to make matters more complicated from an administrative perspective and the calculation of IHT liabilities is set to become more complex."

Steps to take to avoid a big tax bill

To avoid leaving your family with a tax liability, the simplest thing to do is to reduce the value of your estate to below your nil-rate band.

You can give away up to £3,000 each year, which will fall within your annual gift allowance. There are additional allowances for gifts made for specific purposes. You can give £1,000 to anyone you like to help pay for their wedding, and this rises to £2,500 for a grandchild and £5,000 for a child. The gift has to happen before the big day, not after.

There’s a separate rule that means you can give away surplus income inheritance-tax free too. You need to pay it from your regular monthly income and have to be able to afford the payments after meeting your usual living costs.

You are also allowed to give money to pay for the living costs of a child under age 18, or in full-time education, such as at university. This money should not be excessive, and only enough to cover living costs and tuition fees.

If you gift money beyond these rules, it becomes what’s known as a “potentially exempt transfer”, which falls out of your estate after seven years have passed.

As well as cash gifts, you could consider contributing to a loved one’s pension, such as your partner or a child, or paying into a grandchild’s junior ISA.

Downsizing can also lower the value of an estate, and this could be particularly useful if you don’t have direct descendents to leave your home to, and therefore don’t benefit from the increased nil-rate band.

Of course, this is a big decision and needs to be weighed up in terms of emotional and lifestyle factors as well as incurring other costs like stamp duty.

Buying an annuity could also help, as you’re getting rid of your pension pot and receiving a guaranteed income stream instead. If you want to leave a retirement income to your spouse or civil partner, you can buy a joint annuity. This can be inherited tax-free.

Meanwhile, the conventional wisdom to spend ISAs before pensions will become redundant, as both will be treated the same for IHT purposes.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, comments: “The likelihood is we will see people looking to spend down their pensions as retirement income rather than leave them untouched, a move which could keep the rest of someone’s estate below the IHT threshold.

“We may also see an increased interest in annuities as people look to secure a guaranteed income while also keeping their estate below the inheritance tax threshold.”

Something else to consider is a life insurance policy in trust. “If you are concerned about how your family will pay any inheritance tax bill, then you can take out a life insurance policy placed in trust to cover the amount. You will need to pay a monthly premium which depends on how old you are when you took out the policy and your health, but it could be a great way to give you and your family peace of mind,” notes Morrissey.

Savers are racing to top up their pensions and gain valuable tax relief, while retirees are grabbing their 25% tax-free lump sums amid fears that the chancellor could slash popular pension perks in the Autumn Budget.

The government has repeatedly warned that it will have to make “difficult decisions” in a bid to raise revenue, and that the Budget will be “painful”. Two days before the Budget - which takes place on 30 October - Keir Starmer confirmed that there would be tax rises, and said that Britain "must embrace the harsh light of fiscal reality".

Speculation has been mounting that Labour could change the rules on pension tax relief, with high earners losing out - however, chancellor Rachel Reeves is now believed to have abandoned these plans, according to media reports.

The government could also cut the 25% tax-free cash that pension savers are allowed to withdraw from age 55. Reeves is understood to be considering reducing the maximum to £100,000.

Investment platforms have told MoneyWeek that they have seen a change in customer behaviour in the run-up to Reeves’ maiden Budget on Wednesday.

Bestinvest saw a tenfold increase in self-invested personal pension (Sipp) contributions in September, compared to the same month in 2023, with payments also quadrupling compared to August this year.

Alice Haine, personal finance analyst at Bestinvest, says that while the chancellor is now rumoured to be reconsidering plans to cut pension tax relief, "a summer of speculation prompted nervous savers to funnel large sums into their Sipps to get ahead of any changes".

Hargreaves Lansdown has seen a 69% rise in the number of clients contributing the maximum amount to their pension pots between 6 April and 18 October, compared to a year earlier.

Savers can pay in up to £60,000 into a pension each tax year and gain tax relief at their highest marginal rate, thanks to the annual allowance.

Interactive Investor reports a similar picture, with the number of Sipp customers contributing the full £60,000 increasing by 64% since the start of the tax year, compared to the same period in 2023.

AJ Bell said it had also seen signs of savers boosting their contributions.

Meanwhile, Bestinvest said the number of pension withdrawal requests more than doubled in September this year compared to the same month in 2023 – a surge primarily driven by those aged 55 and over accessing their 25% tax-free lump sum as uncertainty prompted people to drastically alter their pension saving behaviour.

Interactive Investor saw a 58% uptick in the volume of cash withdrawals from Sipps that make up part or all of the 25% tax-free lump sum allowance in the first two weeks of September, compared to the same period last year.

Myron Jobson, senior personal finance analyst at Interactive Investor, comments: “With the swirling rumours of changes to the UK pension regime, it’s understandable that many might feel a bit jittery about the future of their retirement savings.”

AJ Bell also saw a rise in people taking their tax-free lump sum in recent months, which “may be due to fears about a possible Budget raid on tax-free cash”.

So, should you also take action ahead of the Budget? While no one knows for sure what the chancellor’s red box will contain, we look at whether there are moves you could make now to prepare.

Consider increasing your pension contributions…

Pensions are a popular area for governments to play with when considering how to raise funds and plug deficits.

The £60,000 annual allowance could be reduced, while Labour may choose to look at pension tax relief too. Higher and additional-rate tax relief could potentially be scrapped, with a flat rate of say 25% or 30% introduced.

However, meddling with pension tax relief would be complicated, and if the government was planning such a move it’s unlikely it would happen straight away. In addition, The Times has reported that Labour is expected to abandon its plans to change pension tax relief after senior Treasury officials told the chancellor the policy would hit public sector workers on "relatively modest incomes".

Having said that, if you have spare cash and are thinking of boosting your retirement nest egg anyway, it could make sense to pay it into a pension now before Budget day.

Hargreaves Lansdown has also seen a 19% jump in those who chose to contribute exactly £3,600 to a pension, which is the maximum that can be paid into the Sipp of a non-working spouse or child.

According to Helen Morrissey, head of retirement analysis at the investment platform, this could indicate that people are taking the opportunity to not just bolster their own pensions, but those of their loved ones too - so you may wish to consider doing this too.

…but don’t rush into taking your tax-free cash

Labour may also look at changing the 25% tax-free cash that pension savers can withdraw from age 55 (the other 75% of their pension pot is liable for income tax). Possible changes include lowering it to 20% - or even axing it altogether - and/or slashing the maximum tax-free amount (£268,275) that savers can take.

Last month, the Fabian Society, a think tank, called for the tax-free cash allowance to be cut to £100,000. And the Telegraph has reported that Reeves is considering the idea.

A poll of advice professionals conducted by abrdn reveals that cutting the pension tax-free lump sum would be the most disruptive out of any mooted Budget measures.

However, experts caution against taking your tax-free cash now simply because of Budget rumours.

Morrissey notes: “The 25% tax-free cash has been around since the late 80s and Labour said it was a 'a permanent feature of the tax system' in the election campaign.

“[However, there are] suggestions that the chancellor might look to trim back the amount of tax-free cash people can take from their pension. Ripping this out of your pension now to avoid a tax grab may seem like a good idea, but it’s something you may come to regret.”

She says savers need to have a plan for what they do with their tax-free cash. “Simply taking it and putting it in a bank account paying a low interest rate means that money misses the potential for further investment growth in the pension. Investments within a pension also grow free of tax, and unless you’re taking £20,000 or less, and putting it in an ISA, you'll lose that protection against tax,” she explains.

Morrissey adds that under current rules, money in a pension is usually free of inheritance tax – “this is not the case with money in ISAs or bank accounts so there’s also the chance that taking your tax-free cash now could land your family with a nasty tax bill in future”.

Do a “Bed and Pension” to escape a potential capital gains tax hike

Experts say it is highly likely that capital gains tax will get a mention in Reeves’s Budget. Potential changes include raising the rates (possibly in line with income tax), cutting the tax-free allowance, changing how and when CGT is levied, and removing reliefs.

Some investors and pension savers are trying to get ahead of this by doing a “Bed and ISA” or “Bed and Pension” transaction now before 30 October.

Bestinvest says Bed and ISA instructions are up by a quarter since Labour came into power in July, compared to the same period in 2023, “as investors consider the tax efficiency of their investments under the new government”. The digital wealth manager Moneyfarm has also seen “a sharp increase in clients liquidating their positions” and rebuying the investments in tax-efficient wrappers, so they can lock in gains at the current CGT rates.

The transaction allows savers to sell investments held in a taxable environment and repurchase them within an ISA or pension – a move that effectively shields those assets from a potential CGT hike provided they don’t breach their CGT exemption of £3,000. “It also serves to protect any future income or gains from tax, making a savers’ investment portfolio more tax-efficient over the short and long term,” comments Haine at Bestinvest.

If you have investments held outside an ISA or pension, it could be a good idea to act now and do a Bed and ISA or Bed and Pension.

By doing a Bed and Pension, in particular, you can take advantage of today’s CGT rates and pension tax relief and shield yourself from any Budget changes.

The misery of applying for pension tax refunds is still dragging on, with HMRC paying out £44 million in the third quarter of this year to pensioners who have been overtaxed.

More than 12,000 reclaim forms were processed by HMRC from July to September, with an average pension tax refund of £3,691.

The over-taxation occurs when too much tax is taken off withdrawals from pension pots. It typically happens when a retiree accesses their pension for the first time and pays an emergency rate of tax.

In the previous quarter (April to June), HMRC paid out an even higher £57 million, with more than 16,000 reclaim forms processed.

About £1.3 billion has now been reclaimed by people overtaxed on pension withdrawals since 2015 when pension freedoms came into effect. The freedoms mean retirees do not have to buy an annuity and are free to take either a regular income from their pension pot or ad-hoc withdrawals as they please.

Helen Morrissey, head of retirement analysis at the investment platform Hargreaves Lansdown, says being overtaxed can cause pensioners “huge problems” and that a “tax nightmare” is not a good way to start your retirement.

She adds: “More than nine years after pension freedoms it is inconceivable to think that people are still being overtaxed on their first pension withdrawals. Many of these people will not have been expecting this, and will have had a nasty shock when their tax bill was way higher than expected.”

While the amount of tax reclaimed has fallen compared to the previous quarter, experts fear that we could see a jump in the next set of data due to worries around next week's Budget.

Jon Greer, head of retirement policy at the wealth manager Quilter, comments: "What’s particularly concerning is that we may see a sharp rise in withdrawals, driven by growing anxieties surrounding the upcoming Budget. With persistent rumours and the government’s rhetoric pointing to a ‘painful’ fiscal event, many savers may take tax-free cash from their pension pots, fearing potential changes to pension taxation. This could lead to hasty decisions, which may not be in their long-term financial interests."

Why are savers overtaxed on pension withdrawals?

Pension savers are allowed to take money out of their self-invested personal pensions (Sipps) and workplace schemes as they wish from age 55 (rising to 57 in 2028). So, for instance, they could withdraw £500 one month, £1,500 the next month, and nothing for the rest of the year.

Pension withdrawals are subject to income tax, bar the 25% tax-free cash. HMRC taxes the first flexible withdrawal someone makes in a tax year on a “Month 1” basis. This means the amount withdrawn is taxed as if that will be the pension saver’s income every month for the rest of the tax year. In other words, a lump sum withdrawal is treated as though you will take the same income every month.

While those who take a regular income or make multiple withdrawals during the tax year should be put right automatically by HMRC, anyone who makes a single withdrawal will likely be left out of pocket.

A Freedom of Information request lodged, earlier this year, by the insurer Royal London revealed that hundreds of retirees have been overtaxed by more than £15,000, with some having to apply for refunds worth a staggering £50,000.

Greer comments: “The tax system's inherent flaws place a heavy burden on retirees. The PAYE system, while effective for regular income, struggles to accommodate the way pensions are accessed under the freedoms introduced in 2015.

“Until the system is changed, we are likely to continue seeing many savers caught out and forced to reclaim significant sums of money.”

How can retirees avoid being overtaxed? 

One way to avoid being overtaxed and having to apply for a refund is by making your first pension withdrawal a small one, if possible.

This should mean HMRC is able to apply the correct tax code to the second, larger withdrawal.

How can pensioners claim a tax refund?

If you are hit with emergency tax, you can complete a form and apply for a refund, or wait for HMRC to put you in the correct position at the end of the tax year.

• If you are taking only some of your pension pot, you should fill out the P55 form.
• If you are taking the whole lot, and have no other income sources for that tax year, fill out P50Z. If you do have another income, complete form P53Z.

Refunds are usually paid within 30 days and are sent directly to your bank account.

Note: if you are taking a steady stream of income via drawdown then you shouldn’t need to take any action, as HMRC will adjust your tax code to ensure that over the course of the year, you are taxed the right amount.

This article is out-of-date. Please see our newer article on this topic: What is the 25% pension tax-free cash - and when should you take it?

The Labour government is rumoured to be considering slashing the maximum tax-free cash that pension savers can take from their pots.

The popular pensions perk allows savers to withdraw 25% of their nest eggs tax-free, up to a limit of £268,275.

Chancellor Rachel Reeves could potentially make an announcement in the Autumn Budget on 30 October.

The Telegraph has reported that government officials have asked one of Britain’s top pension providers to assess the impact of cutting the tax-free lump sum to £100,000.

Both the Institute for Fiscal Studies (IFS) and the Fabian Society have argued that the allowance should be reduced to £100,000 because the current cap favours the wealthy.

There is also speculation that Labour could reduce the 25% tax-free cash amount to, say, 20%. And that the Budget could introduce a flat rate of pensions tax relief - but Reeves has reportedly shelved this idea.

Ian Price, a pensions expert and director of Price Consultancy, tells MoneyWeek that he is aware “that some individuals have taken their tax-free cash just in case something should happen”.

Pensions are an easy target for governments to tinker with and raise much-needed cash. The lifetime allowance, annual allowance and even the state pension triple lock have been chopped and changed over the past few years in a bid to save money.

However, any move to slash the pension tax-free cash could be seen as another attack on pensioners after Rachel Reeves’s winter fuel payments raid.

We look at whether the government is likely to tinker with tax-free cash.

Could Labour change the pension tax-free cash?

Tax-free cash - or pension commencement lump sum in the official jargon - is one of the most popular aspects of the pension system and a key reason why saving within a pension is advantageous from a tax point of view.

While pension savings are normally subject to income tax when withdrawn, a quarter of the pot can usually be taken tax-free.

During the election campaign, Sir Keir Starmer was asked about the future of tax-free cash and he replied that the current system would be reviewed in the coming years, were he to win the election.

However, Labour spokespeople then said he had spoken in error, and that the tax-free lump sum was here to stay.

Having said that, there have been no assurances since Labour got into power. And Starmer and Reeves have repeatedly warned that "difficult decisions" will have to be made, due to Labour inheriting a projected overspend of £22 billion from the Conservatives.

Becky O'Connor, director of public affairs at the pension provider PensionBee, comments: “The tax-free lump sum element to pensions is popular and one of the most universally well-understood benefits of a pension. Because of its popularity, making it less generous would be a risk.

“Options might be to change the percentage from 25% to say, 20%, or to change the maximum, which has been fixed at the same level despite the lifetime allowance being abolished and so now seems quite arbitrary.”

Price agrees that slashing or axing tax-free cash would be risky, saying: “I think it would be a very brave government that would reduce the tax-free cash on pensions.”

Could the maximum tax-free cash limit be lowered?

While the policy of taking a quarter of your pension tax-free may be maintained, the government could choose to reduce the maximum tax-free amount (£268,275) that savers can take.

The Telegraph suggests reducing the limit could raise around £2 billion in revenue at the Budget. Cutting the allowance to £100,000 could affect one in five retirees, according to the IFS.

Hargreaves Lansdown says those with a pension pot of £400,000 or more would be impacted, with savers facing a tax bill of up to £67,310.

Helen Morrissey, head of retirement analysis at the investment platform Hargreaves Lansdown, explains: "The immediate cost to those retiring will be income tax on up to £168,275 (£268,275 – £100,000), a cost of £67,310 if taxed at higher rates, or £33,655 if taxed at the basic rate."

She adds: “The chancellor may have said rumoured changes are designed to hit ‘those with the broadest shoulders’ but changes to the tax-free lump sum would do irreparable damage to the pension system. This risks undermining confidence and impacting people’s retirement savings."

Claire Trott, divisional director for retirement and holistic planning at the wealth manager St. James’s Place, warns that speculation around a reduction to the maximum tax-free cash allowance is "driving behaviours, which could result in people withdrawing excessive funds from pensions, potentially risking reduced retirement incomes".

She adds: "Moving money from a tax-privileged environment into one where growth and income are taxed, and potentially pushing estates into inheritance tax liability, can have significant implications".

Should I take my tax-free cash now just in case?

This is a risky strategy. No one knows exactly what Reeves will announce until she stands up and delivers her speech on 30 October.

While topping up your ISA could be a sensible move in the run-up to the Budget, as saving more is generally sound financial advice plus you can take the money out if you need it, experts caution against taking your tax-free cash purely to avoid a Labour tax grab.

This is because pensions offer a valuable tax shelter. If you take out your money, where will you put it? If you park it in a savings account or investment account, it will liable for tax.

In addition, under current rules, pension savings are usually free of inheritance tax – but this is not the case with money in ISAs, investment accounts or savings accounts so there’s the chance that taking your tax-free cash now could land your family with a nasty tax bill in future.

And don't think you can withdraw the cash "just in case" and then if nothing is announced at the Budget, pay it back into your pension.

There are rules in place to prevent savers taking out tax-free cash and then reinvesting in their pension (known as recycling). Those caught by recycling rules will be taxed at up to 55% of their tax-free cash amount.

We explore this further in Pension moves you should make before Labour’s Budget raid.

Will Labour reintroduce the lifetime allowance?

When former chancellor Jeremy Hunt scrapped the lifetime allowance on pensions, Labour was quick to announce that they would reintroduce it if they won the general election.

However, the party then backtracked on these plans. As a reminder, the lifetime allowance is a cap on how much savers can stash in their pension pot before they are subject to tax of up to 55%.

But could the government reintroduce it? There was no mention of the lifetime allowance in the manifesto, suggesting Labour may be trying to keep its options open.

“It seems unlikely that with the lifetime allowance now abolished and this complicated piece of pension tax legislation now dispensed with, Labour would reintroduce it, with all of the difficulties that would entail,” says O’Connor.

The number of self-invested personal pension (Sipp) millionaires has soared by 20%, according to Hargreaves Lansdown.

The investment platform says it has 3,794 Sipp millionaires, up from 3,166 millionaires two years ago, as more customers boost their pension wealth.

There seems to be a lot more Sipp millionaires than ISA millionaires. A MoneyWeek article revealed in March that Hargreaves Lansdown had 836 ISA millionaires on its platform.

Sipps are a type of personal pension - savers can add money to them and choose how to invest, such as in shares, funds and trusts, or use a ready-made fund. The government adds tax relief to the contributions, and savers can access the money from age 55.

“The number of people hitting the magic million in their Sipp continues to grow, with almost 3,800 HL clients currently Sipp millionaires,” comments Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.

“It shows the dream of living retirement in comfort is possible, but it takes work – there is no 'get rich quick' formula here – the average age for our Sipp millionaires is 63.”

Meanwhile, the online investment platform AJ Bell says it has seen a 44% increase in its Sipp millionaires over the past year. This followed a 22% uplift in 2023. However, it declined to give the total number of Sipp millionaires.

Like Hargreaves Lansdown, it said the average age was 63. AJ Bell added that the gender split among Sipp millionaires was 90% men, 10% women.

The Hargreaves Lansdown data also showed that 90% of its Sipp millionaires are male, and that they tend to hold more investments in the UK, US and gilts than non-Sipp millionaires.

Investment platform Bestinvest told MoneyWeek that 91% of its Sipp millionaires are male and 9% are female. While it wouldn’t reveal the total number of Sipp millionaires, it said around 1% of its Sipp account-holders hold £1 million or more.

It added that the average age of its Sipp millionaires is 64.

We look at how the pension millionaires invest, tips to boost your pension savings, and whether the number of millionaires is predicted to climb further.

Why are there so many Sipp millionaires? 

The big difference between ISA millionaires and Sipp millionaires is that with a Sipp, you get free cash from the government in the form of tax relief. 

So Sipps are automatically turbo-boosted by tax relief (worth between 20% and 45% depending on your tax band), making it easier to build your wealth and hit a seven-figure sum.

Sipps are often used by the self-employed who don’t qualify for a workplace pension, or as a way to consolidate old pension pots. Some workers may also use a Sipp when transferring a final salary pension to a defined contribution scheme.

Hargreaves Lansdown runs a number of group Sipps, which companies use as workplace pensions, so those would be further boosted by employer contributions.

Most of its 3,794 Sipp millionaires have personal Sipps, rather than group Sipps, though.

Morrissey expects the number of pension savers hitting the £1 million milestone to continue to grow in future. 

“Auto-enrolment will see more people start saving for retirement earlier, making it more likely they will build up a good-sized pension throughout their career. The recent abolition of the lifetime allowance will also act as an incentive for people to continue to build on their pension savings and make full use of all their allowances,” she says.

“Labour’s stance on reintroducing it, should it win the election, brought confusion and uncertainty to people’s planning. The recent news that it has opted not to go down this route has been greeted with a collective sigh of relief from savers and the pension industry alike.”

However, she highlights that “the real fly in the ointment of this data is the lack of female SIPP millionaires”. 

Only 10% are female. “This yawning gender pension gap is down to many factors – most notably lower average pay, part-time work and time spent out of the workforce looking after family members. Over time, these factors conspire to give women smaller pension pots than men.”

Tips to become a pension millionaire

Whether it’s a workplace pension or a personal pension like a Sipp, there are steps you can take to increase your nest egg - and your chances of becoming a pension millionaire.

First, start contributing to a pension as early as possible. “The earlier you start, the more time you have to build up a decent pension. Time in the markets means your contributions benefit from extra investment growth and you have more time to tweak your strategy to remain on track,” notes Morrissey.

Second, revisit your contribution level on a regular basis and increase your contributions if you can. Maybe you’ve had a pay rise - this is a good way of boosting your pension without too much financial pain.

If you have a workplace pension, aim to make the most of your employer contribution. Many employers stick to the auto-enrolment minimum (3% of qualifying earnings), but there are some who will pay in more if you contribute more. “This is known as an employer match and can be a good way of really boosting how much goes into your pension without too much extra having to come from you,” says Morrissey.

Look at how many pension pots you have in total. If you have quite a few, and/or you notice any have high charges on them, combining them into a simple low-cost pension can reduce your costs and make the admin easier. If you’re worried you may have lost a pension, follow our tips to tracing lost pensions, savings and investments.

And we have lots more tips on building a £1 million pension for a comfortable retirement.

What do Sipp millionaires invest in?

Sipp millionaires at Hargreaves Lansdown generally have a diversified mix of investments with assets spread across global, US and UK. They hold slightly higher allocations to the UK, US and gilts than non-millionaires.

Here are the top 10 most popular funds and shares for Sipp millionaires:

Source: Hargreaves Lansdown 

What are the most popular SIPP investments?

A self-invested personal pension (SIPP) gives you greater control over how you invest for retirement, and there’s usually a wider selection of funds, shares and investment trusts to choose from.

You may choose to have a SIPP alongside your workplace pension.

SIPPs – DIY ‘pot-for-life’ pensions – are increasing in popularity. The total assets held in SIPPs stood at almost £650 billion in 2025, with more than six million investors, according to MoretoSIPPs, a specialist consultancy run by SIPP industry veteran John Moret.

The midpoint of the year can be an excellent time to review your SIPP – - perhaps the funds you have are not quite working for you or you want to add some additional picks to take advantage of growing opportunities.

With thousands of investment options to choose from, it can be difficult to know which ones to add to your SIPP portfolios.

We spoke to one of the leading platform providers to find out which investments are the most popular with its SIPP holders to help give you some ideas and starting points as to the stocks, funds and trusts you might want to add.

The most popular SIPP investments with Interactive Investor

The most-bought SIPP investments on investment platform Interactive Investor between 1 October 2025 and 31 March 2026 reflected the current divergence between optimism and pessimism surrounding the stock market.

Precious metals were well-represented as the price of gold and silver remained elevated during the period, though no longer at record highs.

iShares Physical Gold ETC (LON:SGLN) topped the list of the most popular SIPP investments on the direct-to-consumer investment platform among real-time investors (as opposed to regular investors, who typically favoured funds). The iShares Physical Silver ETC (LON: SSLN) came in third.

Artificial intelligence (AI) stalwarts Nvidia (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA) took the fourth and fifth spots, while a money market fund came second (money market funds effectively replicate cash-like returns and risk profiles).

On the platform, the top 10 most popular SIPPinvestments among real-time investors between Q4 2025 and Q1 2026 were:

• iShares Physical Gold ETC
• Royal London Short Term Money Market
• iShares Physical Silver ETC
• Nvidia
• Tesla
• Strategy
• Microsoft
• Artemis Global Income Fund
• Vanguard Lifestrategy 80% Equity
• Amazon

The picture was more fund-focused among regular investors during the same period, where globally diversified equity funds dominated. Here are their top 10 picks:

• Vanguard Lifestrategy 80% Equity
• HSBC FTSE All World Index
• Vanguard Lifestrategy 60% Equity
• Vanguard Lifestrategy 100% Equity
• L&G Global Technology Index Trust
• Vanguard FTSE Global All Cap Index
• iShares Physical Gold ETC
• Vanguard S&P 500 UCITS ETF
• Scottish Mortgage
• Fidelity Index World

Craig Rickman, personal finance expert at Interactive Investor, says: “When it comes to the investments people have favoured, funds are the go-to choice for regular contributions, occupying seven out of the top 10 positions. Three out of the top four most popular are various flavours of Vanguard’s LifeStrategy Range, with another global strategy, HSBC’s FTSE All-World Index, sandwiched between them.

“The situation with real-time investments is more disparate, with a mixture of direct equities – notably tech giants like Microsoft, Nvidia, and Tesla – ETFs, global strategies and commodities. The surging prices of precious metals clearly caught investors’ eyes, with two iShares exchange traded commodities, physical gold and physical silver, in the top three positions.”

What else should I consider when choosing my SIPP investments?

The first things to think about when considering your SIPP investments are your age and expected time horizon – how long are you investing for? When do you plan to retire?

In most cases, the longer your time horizon, the more risk you can take. This includes having more exposure to equities, which can be more volatile in price but the longer time frame allows your investments time to recover.

It’s also worth blending a couple of different strategies together to maximise the diversification benefits without risk of overlap, such as a passive developed market and actively managed emerging market fund. Perhaps you want to have some broad market exposure like a global index fund, complemented with some more thematic or specific funds, if there’s a region or industry sector you’re particularly keen on. Bear in mind a more concentrated portfolio brings associated risks.

For investors later in their journey, or retired clients using their SIPP in drawdown, an income generating option makes sense. Many experts also consider bringing down the equity risk in a portfolio as one nears retirement, looking for a total return through mixed assets.

You could give your ISA and pension portfolios a financial boost this summer with a range of cashback deals and incentives.

Investment platforms are trying to attract business by offering cashback to new and current customers who open or transfer an ISA or self-invested personal pension (Sipp) to their platform.

Others are giving out cash or vouchers for referring a friend, money to cover exit fees when switching from a competitor, or free trades.

A juicy cashback bonus could give your ISA or Sipp a big boost.

Here are some of the best ISA and Sipp cashback deals on offer.

The best Sipp and ISA transfer offers

Charles Stanley Direct

Earn up to £1,500 cashback when you transfer ISAs and pensions to Charles Stanley Direct.

You can get up to £1,500 cashback if you transfer your cash and/or investments held with another provider to the Charles Stanley Direct Online Investing platform.

The amount of cashback you earn increases the more you transfer, and applies to general investment accounts, stocks and shares ISAs, Junior ISAs and Sipps.

This is an ongoing offer with no end date. You need to transfer at least £20,000 to qualify for any cashback. If you move over £200,000 or more, you'll get the maximum £1,500 bonus plus a six-month fee waiver.

The money must be held with Charles Stanley Direct for at least a year; the cashback payment will then be made within 30 days of the end of the 12-month period.

£250 referral bonus

You can get a bonus if you refer a friend or family member to the Charles Stanley Direct platform, depending on how much money they transfer.

The firm offers £250 if you refer a friend or family member and they transfer more than £20,000 into their new Charles Stanley Direct account.

The person you refer will then get the transfer bonus as detailed above, earning between £300 and £1,500 depending on the amount of money they transfer.

They will need to transfer at least £20,000 within three months of registration and hold their cash or investments there for at least nine months to be eligible.

To be able to refer friends to Charles Stanley Direct, you need to hold at least £1,000 of cash or investments with the platform.

AJ Bell

Get up to £500 towards transfer costs when switching to AJ Bell.

AJ Bell will cover the costs when transferring a Sipp, ISA or dealing account. It will pay up to £35 per investment moved and up to £100 for general exit fees, up to an overall maximum of £500 per person.

To be eligible, the account being transferred must be valued at £20,000 or more.

Once you make the transfer, you need to write to the platform with documentation. You’ll receive the money back within 28 working days.

You must keep the transferred funds in your account for at least 12 months or the money could be reclaimed.

Interactive Investor

You can £200 cashback when you switch to interactive investor’s (ii) Sipp.

A minimum of £20,000 has to be transferred or deposited by the end of June 2026 to qualify and you will also need to add an ii Trading Account.

Once a minimum of £20,000 has been transferred to ii, you will get your cashback within 30 days.

InvestEngine

InvestEngine’s customers can get up to £200 cashback when they recommend a friend to its ISA, Sipp or general investment accounts and the friend invests at least £100. The friend will also receive the bonus.

If you refer someone to a Business Account, the bonus is increased to up to £400.

Referral bonuses for both normal and business accounts are randomly generated. The probability tables can be seen below.

Source: InvestEngine

Customers can refer up to 25 friends. You must keep your bonus invested for at least 12 months before you can withdraw it.

Lloyds

Lloyds will pay new and existing customers up to £5,000 for transferring and combining old pensions into its Lloyds Ready-Made Pension (RMP) and Lloyds Self-Invested Personal Pension (SIPP) between 1^st June and 30 November 2026.

To get this cashback, a Lloyds, Halifax or Bank of Scotland current account must be held or opened during the offer period and must be open by 31 May 2027.

Customers must transfer across at least £20,000 from one or more pensions using the online transfer application.

Cashback will be paid into the customers’ personal bank account by 30 June 2027.

The cashback figure will depend on the amount transferred and starts at £250 for transfers between £20,000 and £49,999. You will need to transfer £2 million or more for the full £5,000 cashback.

Fidelity

Fidelity will reimburse any exit or redemption fees charged to a customer by their former provider when moving ISAs, pensions, investment accounts, or junior accounts to the platform, up to a maximum amount of £500 per customer. The minimum transfer is £100.

Where a re-registration or transfer is not possible and the customer chooses to sell their investments held through another provider and subsequently make new investments through Fidelity, the platform will also cover up to £500 of fees. This is based on a minimum £10,000 investment.

Claims must be made within six months from the date of transfer.

The platform will also give current users a £100 Amazon.co.uk Gift Card if they recommend a friend and they open an ISA or pension account.

Things to consider when transferring an ISA

You can transfer your ISA from one provider to another at any time, either to a different type of ISA or the same type of ISA.

Under the current multiple ISA rules, you also have the flexibility to choose to move some or all of the funds.

To transfer your ISA, simply contact your provider and fill out the transfer form to move your account.

If you withdraw the money without doing this, it will lose its tax-free status, so make sure you’re following the correct process. Transfers typically take anywhere between 15 to 30 days.

Check there is no charge to transfer your current ISA, as well as your new provider’s fees, to make sure it makes sense to move your money. If the new provider’s fees are higher, then it might be worth sticking with your current provider.

Equally, if the transfer fee would eat into your savings (and you can't reclaim this from the new platform), it might not be worth it.

The property market’s outlook for 2023 might remain uncertain, but rental inflation remains high, data from Zoopla has shown.

Though rental inflation has slowed to 11.1% from a high of 12.3% mid-2022, rents are predicted to continue rising this year, albeit at a slower rate than before as “demand moderates and affordability pressures start to bite harder on renters”, said Richard Donnell, executive director at Zoopla.

Furthermore rents have risen 20% in three years, adding an extra £2,200 a year onto tenants’ housing bills.

Rental inflation is predicted to slow to between 4 and 5% by the end of the year, but the supply vs demand imbalance that has fueled the red hot rental market does not seem to be going anywhere.

Indeed, a third fewer homes are available for rent than normal and demand remains 10% higher than this time last year.

“Rents will continue to rise ahead of incomes unless we see a sustained increase in rental supply or a material weakening in demand, both of which appears unlikely at this stage,” Zoopla said.

Some analysts are predicting house prices could fall 30% this year, but the latest figures from online estate agent Rightmove showed prices in the rental market

The figures might make buy-to-let investors wonder if now is a good time to invest in property. If you are thinking about purchasing a home to let out, it’s worth looking into the best areas for buy-to-let in the UK.

We look at why rents are increasing and whether now could be a good time to buy a house. You may also be interested in our article on buying vs renting.

Why are rents increasing?

A strong jobs market has been the main driver of the increase in rental demand. A jump in student numbers has also contributed.

There is a reported supply/demand imbalance in purpose-built student accommodation in university towns, meaning student demand will “spill over into the wider rental market”, which explains why rental inflation remains high across bigger cities.

Additionally the supply of rented housing has remained largely unchanged since 2016.

In 2021 there were 5.5 million private rented homes in Great Britain, only slightly higher than the 5.4 million available in 2016 despite the number doubling between 2002 and 2015.

Where next for rental prices?

Low supply will continue to exacerbate rental growth. But if rents get too high, there is a risk they may over-shoot sustainable levels.

Inner London is the area most at risk of overshooting rents. If rents increase so much that existing tennants cannot afford them, then the rental level “would need to reset lower” which would lead to a “sharp slowdown in growth rates”, the report said.

But rents as a percentage of earnings are at or close to a ten-year high in all regions, except for London.

One bright spot is new build completions, which will add supply. Additionally home-owners who are waiting to sell until market conditions improve might decide to rent their homes out, which could also add supply to the market.

“There is no sign of the rental market slowing down due to the continuing imbalance between supply and demand,” says James Redington, sales & lettings director at Douglas & Gordon.

“We’ve seen the highest rent increases we’ve seen for decades, and we don’t expect this to slow down in the short term.”

Estate agent Rightmove is also forecasting the pace of annual growth will ease to around 5% by the end of the year nationally, but that’s still significantly over the average of 2% that the sector averaged saw pre-pandemic.

What does this mean for landlords?

Landlords face a tricky landscape given the effect the rising cost of living is having on tenant’s budgets.

Additionally landlords are facing higher upfront costs when it comes to buying a home.

In London the equity needed to invest in a property has increased from £129,000 in the first quarter of 2022 to £257,000 in the same period in 2023.

Given that properties in London have the worst rental yield, the investment might not make sense.

Landlords who decide to invest in a buy-to-let property in London will require a higher loan-to-value mortgage. Due to higher interest rates, the repayments would be far higher than they have been previously.

“While Zoopla’s latest data shows that rental growth remains robust, storm clouds are on the horizon for buy to let investors,” said Phil Tennant, COO of instant buying firm Upstix. “With higher interest rates eating into profits, even as average rents continue to increase, the sector is looking markedly less attractive as we move further away from historically low rates.

“The real danger lies just around the corner in 2025, when all residential lettings need to meet a minimum EPC rating of C. For many small landlords, finding the cash to upgrade their properties in today’s tough environment may be the straw that breaks the camel’s back.”

A growing number of money apps are popping up to help users manage their finances, save them cash and build their financial resilience. If you have a smartphone you probably already have a few banking apps to check your current account or credit card balance, and maybe one to keep an eye on your investments. But there’s also a range of budgeting and money-saving apps that can help you manage your finances better and even cut your household bills – something we’re all looking to fo during the cost of living crisis.

Money apps can save you time and money, with some switching your household bills to a cheaper competitor, cancelling unwanted direct debits for you, helping to file a tax return, or automatically squirrelling away some of your earnings to invest or save. We round up four of our favourite money management apps.

1. Snoop: reduce your bills

If you want personalised help cutting your bills, consider Snoop. The free money management and budgeting app can help you track your spending and lower your household bills.

By using Open Banking you can connect your bank accounts and credit cards to the app and see them all in one place. This allows the app to “snoop” through your finances and look at where you already spend your money. Snoop lets you know if there are voucher codes available for when you buy something from one of your favourite stores, or cheaper competitors for you to switch your bills to, such as broadband or car insurance.

Snoop is registered and authorised by the Financial Conduct Authority (FCA), the City regulator.

2. Emma: help with direct debits

The average adult spends £39 a month on unused direct debits, standing orders and recurring card payments, according to NatWest - that’s £468 a year. The Emma app can help cut back on these money leaks. The most common unused subscription is a gym membership. But many of us are also paying for video-streaming services we don’t watch.

Get help sorting through your wasteful subscriptions with Emma. This free app is described as “your financial super app”, designed to help you avoid overdrafts, cancel wasteful subscriptions, track debt and save money. It also offers commission-free stock trading.

Using Open Banking you can connect your accounts, including investments, to the app and view them in one place. The app can find and cancel any subscriptions you may have signed up to but forgotten about, offers cashback at more than 500 retailers, and helps you save for different goals by creating “Emma pots”.  There are also three paid-for versions of the app that offer extra features, ranging from £4.99 to £14.99 a month in price, though you can do a 7-day trial for free. 

The Emma app is authorised and regulated by the FCA.

3. Plum: Help with saving and investing

Plum says it helps more than one million people invest, save and manage their spending. The app tracks your spending habits and gauges how much you can afford to save, then puts some money aside for you every few days. This auto-save feature also gives the option to round up your purchases to the nearest pound and save the difference (for example if you spent £2.60 on a coffee, it would save 40p).

The basic version app is free, but you can also upgrade for £1 a month, which means your savings will automatically be invested into shares and bonds via a Plum Isa (additional investment fees will apply). There are alternative plans ranging from £2.99 to £9.99 a month (note: you can do a 30-day trial for free) , offering extra features such as cashback of up to 11% when shopping with certain retailers, a Plum card and additional stocks to invest in.

Plum is registered and authorised by the FCA – although some of its products are not covered by the Financial Services Compensation Scheme (FSCS).

4. Untied: Help filing your tax return

Get help filing your tax return with Untied. It allows users to link the app to bank accounts, credit cards and tax accounts, upload or add data manually, and then it gives an estimate of what your tax bill is likely to be.

 Untied’s “lite” version costs £24.99 a year, while the “pro” version is priced at £49.99 a year, which gives you access to the app (the lite version works only on a desktop or mobile browser), plus you can link an unlimited number of bank accounts. The pro version also includes support for capital gains and property income.

The average accountant charges £150 to £250 to file your tax return. So if you’re comfortable using an app, this could save you a decent chunk of cash. Untied is regulated by the FCA and supervised by the Chartered Institute of Taxation.

Interactive Investor’s new low-cost pension plan could kickstart a price war in the sector. The investment platform is launching Pension Builder, a new self-invested personal pension (Sipp) for which savers will pay a flat fee of £12.99 a month, however much their fund is worth.

Flat fees tend to work out better value than percentage-based charges on larger pension funds. But Interactive Investor’s fee is low enough to be competitive for smaller funds, too. Analysis from Compare the Platform suggests that on a pension fund of £50,000, only Fidelity Personal Investing and Vanguard would work out cheaper – though the latter offers a more limited choice of underlying investments. On pension funds of £100,000 or more, Interactive Investor moves into the lead.

Interactive Investor’s new pension is designed to appeal both to savers just beginning with pensions and to those transferring from rival platforms. For the latter there is an opportunity to save money straight away, while for first-time pension savers, the £12.99 monthly fee will work out more expensive than some plans in the early years, before saving money later on.

Game changers

The launch exemplifies how investment platforms have changed the game for savers opening individual plans rather than (or as well as) contributing to a work-based pension scheme. Most platforms offer access to the same range of underlying investments – basically any collective investment fund, as well as direct equities – and functionality such as research and planning tools. What you’re looking for is the cheapest deal for your level of savings.

Missing out on the best pricing can have a large impact on your pension’s value. Each pound paid in charges is a pound you can’t invest or earn compound interest on.

Research from analyst Lang Cat, based on a 35-year-old with a £100,000 pension pot who invests £10,000 a year for 30 years and earns an annual return of 5%, suggests the cheapest plan today would deliver a final pension value of £1,191,737. At more expensive providers, the same saver would end up with up to £53,000 less due to charges.

Making comparisons between platforms is not straightforward. They charge in different ways – some favour flat cash fees while others charge a percentage fee. These platform fees are not the only charges to consider. There will also be charges to pay when you make new investments or change your portfolio, and for other services. Like many plans, Interactive Investor charges for things such as dividend reinvestment.

Comparison sites such as Compare the Platform or Money to the Masses allow you to make comparisons according to your circumstances – how much your pension fund is worth and how you plan to invest, for example. This should give you a better idea of the best deal for you, instead of just headline charges.

Nevertheless, Interactive Investor’s new launch is a welcome addition to the pensions marketplace, providing stiff competition to the likes of AJ Bell, Fidelity and Vanguard. It should also give savers pause for thought. Alongside the launch, Interactive Investor consumer research found only 12% of savers look carefully at pension charges. The rest are at risk of blowing an unnecessarily large hole in their pension funds.

If you're heading towards retirement, you may be thinking about how best to access your pension pot.

If you’re saving for retirement into a defined contribution (DC) pension scheme, pension drawdown is one option for accessing the funds you've built up. It provides a way of accessing your pot flexibly, giving you the freedom to spend some of your money while leaving the rest invested.

Terms vary between providers though, so it’s important to shop around for the best drawdown deal.

There are pros and cons of using this approach, and drawdown won’t be suitable for everyone.

What is pension drawdown?

Pension drawdown – sometimes known as income drawdown, or flexible drawdown – allows you to access your workplace pension savings or self-invested personal pension (SIPP), while leaving a portion of it invested. This gives you the option of continuing to accrue investment growth, while also funding your immediate lifestyle needs.

When you reach the age of 55 (57 from 2028), you’re entitled to take up to 25% of your pension pot as a tax-free lump sum. That’s the maximum you’re allowed to take. You don’t have to take anything at that point and you’re not obliged to take it all at once. We get into some of the different options available in this article.

The 25% rule applies per pension, so if you have multiple pensions gathered over a lifetime with different employers, each pot will have its own tax-free cash element.

When looking to set up a drawdown plan, you can either stick with your current pension provider or shop around.

Your current scheme may be able to convert your existing plan on your behalf, offering you continuity if you’re happy with the service you've been getting. But you might be able to get a better deal elsewhere. For example, you could enjoy lower fees, a broader choice of investment options or better levels of support. So, it’s always worth shopping around to see what’s available.

Consulting a financial adviser would be wise in this scenario. They’ll be able to assess the best way to manage your drawdown withdrawals by looking at your current financial situation, your retirement goals, as well as how you would like the remaining pot to be invested.

Once you’ve set up a drawdown plan, you can still hunt for better ways to manage your retirement money, say by changing your drawdown provider, or how often and how large your withdrawals are.

What types of drawdown arrangements are there?

From age 55, you’re allowed to take up to 25% of your pot as a tax-free lump sum but you don’t have to take it all at once – or even at all.

The more money you leave invested, the bigger the amount that will be left to grow through your stock market investments over time.

A single lump sum may be useful if you have a big outlay, such as paying off debt, helping out family or sorting out some big house renovations or a big holiday.

Depending on your provider, you may wish to take a gradual or phased approach.

In a drawdown plan, once you make a single lump sum withdrawal, it’s known as crystallising your pension pot.

What is flexi-access drawdown?

Flexi-access drawdown (formerly known as flexible drawdown) allows you to take up to 25% immediately, tax-free while the remaining 75% stays invested. There are no limits on how much income you can withdraw, but any amounts above the tax-free limit will be taxed at your normal marginal rate of income tax.

Once you take any taxable income from your pension, it triggers the money purchase annual allowance (MPAA), which caps the amount you can contribute into a DC pension each year to £10,000.

What is phased drawdown?

Phased, or partial, drawdown is not a product, per se, but a strategy that can help with gradual retirement. This lets you take money from your pension in smaller amounts, with 25% of each withdrawal taken without being taxed.

You can split your total pot into smaller pots, moving each into drawdown at different times, with each move allowing you to take up to 25% of that portion tax-free, keeping the rest invested or generating an income for you.

How is pension drawdown taxed?

The first 25% of your pension pot can be withdrawn tax-free, and this can be taken at once or over multiple withdrawals.

The amount you can draw from your pension in drawdown is capped according to two measures:

• The lump sum allowance (LSA) that is capped at £268,275 – the total tax-free cash you can take from your pensions
• Lump sum and death benefit allowance (LSDBA), which is capped at £1,073,100 – the total amount you can receive in your lifetime or that can be paid out to beneficiaries as a lump sum on your death.

Once you’ve moved into drawdown, any income or further withdrawals you make will be taxed at your regular (marginal) income tax rate.

Is pension drawdown right for me?

Drawdown is not suitable for everyone. Keeping your pension pot invested means there is continued exposure to risk. If you’re not happy with the uncertainty associated with investing during retirement, then drawdown may not be the right choice for you.

Similarly, drawdown does not offer a guaranteed income in the same way as an annuity. The income you receive will be dependent on the investment performance of your fund, so steer clear if you’re looking for something stable.

If you’re not particularly financially savvy, drawdown could be a burden. It requires a degree of engagement and financial knowledge to make the right decisions. Receiving financial advice also comes at a cost – albeit one that is very worthwhile if you're not fully clued up.

Another thing to think about is your own longevity – your pot has to last you, and you don’t want to run out of money prematurely.

Despite these potential drawbacks, drawdown can be an excellent option for certain people. An important factor to consider is the size of your pension pot. Citizens Advice recommends drawdown to those with a six-figure pot, or for people who have enough other regular income from savings or investments.

Likewise, if you anticipate having higher income needs near the start of your retirement, the flexibility afforded by drawdown means you can access a larger portion of your pot, perhaps to cover the final few years of a mortgage, before tapering it down to a lower level.

Drawdown can make sense when it comes to legacy planning, too. Any remaining funds can be passed on to your beneficiaries when you die, making it a great alternative to an annuity if leaving a legacy is important to you.

It’s also possible to mix and match, using part of your pension to secure an annuity while moving the rest into drawdown to give you a more flexible income as and when you need it.

Everyone’s financial situation and retirement goals are unique, so it is vital to fully evaluate your circumstances and seek financial help if you need to. Support can also be accessed through the government’s MoneyHelper scheme, and by having a free Pension Wise appointment.

A personal pension or Sipp is an effective retirement plan for the self-employed or directors alongside a workplace pension, or those in retirement to draw an income.

Not everyone has the time or inclination to self-research, select and monitor funds or investment trusts, preferring to enlist the help of a professional.

One of the simplest and cheapest ways to do this is using a global investment trust such as Alliance Trust.

It has several characteristics that make it a strong choice for long-term ‘buy-and-forget’ investors with diversification being the most obvious. Different parts of the portfolio are outsourced to expert managers to run as sub-funds with the trusts holding hundreds of underlying stocks worldwide.

Diversification can however make topping performance tables a challenge in the short term. But in the long term, achieving solid, reliable outcomes is easier as no individual holding or manager’s troubles will adversely impact the whole portfolio.

Size is another benefit as Mick Gilligan, head of managed portfolio services at wealth manager Killik, explains: “With scale comes lower costs: fixed costs such as directors’ fees are lower as a percentage of total assets, and bid/offer spreads are lower.”

Trust managers are also in a stronger position to negotiate more competitive fees with the underlying managers, given the chunky mandates on offer.

So despite a double layer of charges (for the trust and for the sub-managers), the ongoing charges figure (OCF) for Alliance Trust at 0.64%, is competitive. There are cheaper multi-manager trusts but these tend to use in-house teams and funds so offer less diversity.

A one-stop shop for new investors

For novice investors, allowing experts to do all the heavy lifting is appealing and managers of these trusts have amassed considerable expertise in identifying and monitoring ‘best of class’ sub-managers. Conversely, if a sub-manager persistently disappoints then it’s the trust managers’ job to take action, and if necessary move that mandate.

Professional portfolio management also means investors get ‘special access’ to say sub-managers who normally run institutional money or are based overseas.

The trust manager is also responsible for asset allocation. As David Henry, a portfolio manager at wealth manager Quilter Cheviot, puts it: “There’s a danger of becoming a financial magpie and being attracted to the next big shiny things, which would probably have been technology and the US over recent months. If you have a manager who has the discipline and expertise to look also at more out-of-fashion areas with potential to rebound over the long term, then it’s a pretty attractive package.”

Alliance Trust’s specialist managers deliberately avoid taking big bets on specific countries, sectors or styles (favouring only growth or value stocks, for instance), on the grounds that macroeconomic outcomes are so complex and difficult to predict.

Instead, their focus is on identifying the best companies with genuine long-term competitive advantage and strength. The integration of environmental, social and governance (ESG) factors into the stock-picking process underpins that perspective.

Income in retirement

Conventional wisdom might push investors to sell out of non-income-focused holdings at retirement to boost yield. But, as Henry points out, by focusing too much on yield, they risk missing out on other high-quality investment opportunities.

“I prefer to take a total return approach with pension money and have a stable, sustainable yield, rather than chasing an income of 4 or 5%,” he comments. “We’re trying to keep as many equity options on the table as possible at that stage – and the need to manage portfolio volatility means it’s worth having exposure to other asset classes as well.”

He maintains global generalist trusts are suitable for those in retirement since they are not specifically run as income-producing investments, but many members of the global sector are AIC Dividend Heroes, with decades of consistent dividend growth behind them.

Thus, F&C has a 450-year dividend growth record; Alliance Trust’s has 54 years.

Find out more about Alliance Trust

*Past performance is not a reliable indicator of future returns.

A personal pension or SIPP forms part of many people’s financial retirement plan, whether they are self-employed, have set one up alongside their workplace pension, or are using it in retirement to draw an income.

But, of course, not everyone has the time or inclination to research, select and monitor a portfolio of funds or investment trusts; and even among those who do, many are happy to hand at least some of the legwork over to professional managers.

There are various ways to achieve this, but one of the simplest and cheapest is to make use of one of the several global investment trusts run on a multi-manager basis. Alliance Trust and Witan are two of the most obvious and familiar examples.

Such trusts have several characteristics that make them strong choices for long-term ‘buy-and-forget’ investors at any stage of their investment journey, so let’s look at these factors first.

Perhaps the most obvious is diversification: because different parts of the portfolio are outsourced to other highly regarded managers to run as sub-funds on the basis of their best ideas, these trusts hold hundreds of underlying stocks worldwide.

Diversification by definition makes it very difficult for them to top the performance tables against more concentrated ‘best ideas’ funds over the short term. However, they are better-placed to achieve solid, reliable outcomes over the long term, because no individual holding’s troubles has more than a marginal impact on the fortunes of the fund as a whole. Similarly, if a manager blows up, it won’t drag down the whole portfolio.

The sheer size of many global trusts is another big benefit, in several respects. Mick Gilligan, head of managed portfolio services at wealth manager Killik, explains: “With scale comes lower costs: fixed costs such as directors’ fees are lower as a percentage of total assets, and bid/offer spreads are lower.”

Additionally, the trust managers are in a strong position to negotiate more competitive fees with the underlying managers, given the chunky mandates on offer.

So although there is actually a double layer of charges (for the trust and for the sub-managers), the ongoing charges figure (OCF) for Alliance Trust is 0.64%, which is competitive for multi-manager trusts using a range of external expert stock pickers. There are cheaper multi-manager trusts but these tend to use in-house teams and funds so offer less diversity.

Another benefit of scale is that most global generalist trusts are constituents of the FTSE All Share Index. Gilligan explains: “This is the most widely tracked UK index, and inclusion provides helpful ongoing demand for the shares from index-tracking funds.”

Huge trusts also gain the capacity to buy back shares in order to narrow the share price discount to net asset value (NAV), which again adds value for existing shareholders. Gilligan points out that share buybacks in Alliance Trust’s last full financial year added 1.3% to total shareholder performance. “This is meaningful, and not something that small investment trusts are able to do to the same extent,” he adds.

A one-stop shop for new investors

However, there are additional considerations for starting investors, who – let’s face it – may well have better things to do with their spare time than poring over their portfolios.

For them, there’s a big pull in the fact that the experts do all the heavy lifting. Much of the focus for the managers of these trusts is in identifying and monitoring ‘best of class’ sub-managers, and over the years they build considerable expertise. Conversely, if a sub-manager persistently disappoints then it’s the trust managers’ job to take action, and if necessary move that mandate.

In addition, that professional portfolio management can mean investors get ‘special access’. Trust managers may offer mandates to sub-managers who normally run institutional money or are based overseas, and who therefore may not even be on the mainstream UK investor radar.

The trust manager is also responsible for asset allocation. As David Henry, a portfolio manager at wealth manager Quilter Cheviot, puts it: “There’s a danger of becoming a financial magpie and being attracted to the next big shiny things, which would probably have been technology and the US over recent months. If you have a manager who has the discipline and expertise to look also at more out-of-fashion areas with potential to rebound over the long term, then it’s a pretty attractive package.”

It’s worth pointing out in this context that Alliance Trust in particular is an interesting proposition, in that the specialist managers deliberately avoid taking big bets on specific countries, sectors or styles (favouring only growth or value stocks, for instance), on the grounds that macroeconomic outcomes are so complex and difficult to predict.

Instead, their focus is on identifying the best companies with genuine long-term competitive advantage and strength. The integration of environmental, social and governance (ESG) factors into the stock-picking process underpins that long-term perspective.

Core and satellite approaches

As investors’ pension pots grow over the years, they may well start thinking about the possibility of adding other funds to the portfolio.

There are two approaches in this respect, not mutually exclusive. One option is to take the view that a global generalist trust provides pretty comprehensive equity exposure, and use additional holdings to branch out into other asset classes that are not closely correlated with the fortunes of equity markets.

David Henry suggests that for older clients with retirement in their sights, this could have the added attraction of stabilising and lowering volatility in the overall portfolio.

“For clients getting towards the end of their career, the potential for their pension to fall by say 30% if markets implode – as happened last year – may be deeply uncomfortable, especially when you take into account the larger size of their pot,” he points out.

So, while for equity coverage the existing global holding is doing an effective job, diversification into other asset classes such as bonds, property and infrastructure helps limit overall portfolio damage in such an event.

The proportion you allocate to non-equity holdings is a personal decision, dependent on your stomach for stock market volatility, but as you get closer to actually drawing an income from your investment, it’s likely to shift away from the riskier end of the spectrum. A typical ‘balanced’ portfolio might have 30-40% in bonds and other alternatives, and the rest in equities.

For Mick Gilligan, satellite funds could also be an interesting way for rather more engaged investors to gain additional exposure to under-represented areas of the equity market.

He explains: “For example, the UK is only 12% of Alliance Trust’s portfolio, but some investors might wish to have a higher exposure in their home market, particularly given how cheap the UK market is relative to others and considering the choice of UK investment trusts that are available.

“Equally, investors that believe commodity prices will continue to increase may wish to get access to BlackRock World Mining trust to boost the small allocation (5%) that Alliance Trust has to materials.”

Income in retirement

Conventional wisdom might push investors to sell out of non income-focused holdings at retirement, in order to boost yield. But as Henry points out, the danger is that in focusing too much on yield, they risk missing out on other high-quality investment opportunities.

“I prefer to take a total return approach with pension money and have a stable, sustainable yield, rather than chasing an income of 4 or 5%,” he comments. “We’re trying to keep as many equity options on the table as possible at that stage – and the need to manage portfolio volatility means it’s worth having exposure to other asset classes as well.”

He maintains that global generalist trusts can therefore work well for those in retirement. They are not specifically run as income-producing investments, but many members of the global sector are AIC Dividend Heroes, with decades of consistent dividend growth behind them.

An added resilience is that investment trust boards (unlike open-ended funds) are allowed to retain up to 15% of dividends each year to build a reserve fund that will help them maintain payouts when times are tough and companies are cutting or suspending their dividends, as happened last year.

Thus, F&C has a 49-year dividend growth* record; it yields 1.5% and has reserves able to cover dividends 1.8 times.[1] Alliance Trust’s respective figures are 53 years, 1.6% and 2.4 times

“Although many may think these yields are low, they are very competitive when compared to cash deposit rates, they are very resilient, and I have always thought it helpful in times of market stress to focus on a reliable dividend income rather than worry too much about share price fluctuation,” comments Gilligan.

However, a dividend yield of under 2% is unlikely to be enough for investors heavily reliant on their Sipp portfolio (though it might work as it stands for those with a final salary pension as well).

One option is to switch into higher-yielding satellite funds, which could include the likes of alternatives such as property, debt or infrastructure holdings as well as bonds and equity income.

The other is simply to supplement the yield with capital by selling shares. The long-term equity risk premium – the excess annual return from equities over a risk-free alternative – has been around 5% above inflation, and Gilligan suggests investors could use this as a yardstick when drawing capital gains to supplement income.

“If their portfolio generates a yield of 2%, they should be justified in taking around 3% a year in the form of capital gains and still being able to maintain the real value of their portfolio,” he says.

Find out more about Alliance Trust

Faith Glasgow is a freelance writer and former Editor of Money Observer.

*Past performance is not a reliable indicator of future returns

[1] Winterflood Investment Trust daily data sheet, as at 1 February 2021

Next year Vanguard, the world's second-largest fund manager, is launching Britain's cheapest private pension to date, "throwing down the gauntlet to its competitors and fuelling expectations of a price war", says Emma Agyemang in the Financial Times. The self-invested personal pension (Sipp) will have an annual administration charge of 0.15%, capped at £375. That is far below the industry average of 0.35%, says independent analyst Platforum. There will also be no additional costs for exit fees, valuation statements or transfers.

Vanguard says the Sipp will initially only be available to people who are building up their retirement savings, not those that have already started drawing on them. A pension drawdown service is expected to launch in the next tax year. Someone putting the full £40,000 annual pension allowance into the Vanguard Sipp would pay £172 a year in charges. The same amount in a Vanguard fund held in the most expensive platform's Sipp would cost up to £400 a year.

"Compounded over decades of pension saving, these fees can add up," says Louise Cooper in The Sunday Times. A 43-year-old investing £40,000 for the next 25 years would save almost £10,000 with Vanguard's Target Retirement fund if invested with Vanguard's Sipp instead of a higher-cost platform.

Two years ago Vanguard introduced an Isa and investment platform "credited with starting a price war that has forced [rivals] to push down their costs", says Cooper. "The Sipp, which promises to let savers sign up in just ten minutes, could shake up the market again by forcing another reduction in costs."

Vanguard's funds are cheaper too

There's more good news. Vanguard has some of the lowest fund fees in the industry. A typical Vanguard fund comes with an average fee of 0.2%. Hargreaves Lansdown, the biggest investment platform, charges an average fund fee of 0.94%. Note too that the account-fee cap applies across all the products you hold with Vanguard, whether that's a Sipp, Isa, or a general account.

The drawback to the Vanguard Sipp is the choice of funds. "It only offers a limited own-brand selection," notes Jayna Rana on This is Money. Hargreaves Lansdown charges more a 0.45% management fee plus fund fees and some dealing charges but offers a full range of funds, investment trusts and UK and international shares.

Some investors will pay more in order to get access to a far wider choice of investments. But the success of Vanguard's Isa shows that many will opt for a limited selection in return for low and clear charges. "Most pensions cost more and [have] complicated fee models," Holly Mackay, founder of Boring Money, told the Financial Times. "This one is cheap and simple... unusual... in financial services."

A self-invested personal pension (SIPP) is your own private retirement pot. Typically independent of your workplace pension, it can be easier to keep track of and is often called a ‘pot for life’. But that doesn’t mean you should be stuck with the same provider forever. Whether you’re looking for your first SIPP or a new home for your current retirement savings, it’s a good idea to compare providers to get the best deal in 2026.

Opening a SIPP can pay dividends in later life, providing a welcome private pension boost on top of your state pension entitlement, as well as any workplace pension and life savings.

Picking a SIPP account with the lowest costs is a good place to begin. The fees you pay for your SIPP could eat into your retirement pot. But beware providers often charge different fees for different services. The most cost-effective provider can depend on the size of your pension pot and often, the cheapest deals are often reserved for those with bigger pots.

Jo Groves, investment specialist at research firm Kepler Partners, said: “The number of SIPPs has surged sixfold over the last decade, recently passing the milestone of six million holders, as people take control of their retirement and tax planning.

“Choosing the best SIPP provider can make a significant difference to individual retirement savings, particularly in terms of maximising the value of your portfolio and minimising fees. Over the long term, even small differences in fees can reduce the value of a portfolio by hundreds of thousands of pounds.”

For example, a £100,000 portfolio growing at 10% a year for 30 years could be worth £200,000 less with a 0.45% annual platform fee versus no fee, according to Kepler’s calculations. Double the starting lump sum to £200,000 and the lost value climbs to £400,000.

“It’s worth carefully weighing up the pros and cons of different pension providers to find the best option to meet your needs,” Groves added.

Customer service can also vary a lot, meaning many pension savers will be looking for value for money: good customer service plus competitive fees., which we’ll also highlight later in this article.

Comparing SIPPs: the top SIPPs for low fees

Broadly speaking, SIPP charges during the accumulation phase (when you're building up the pension fund) fall into three categories. You need to consider the administration charge that the provider charges for the plan itself; dealing fees incurred when you buy and sell various investments; and the charges on the underlying funds in your SIPP.

Research from Kepler Trust Intelligence puts Freetrade at the top of the cheapest SIPP provider list in terms of all fees for portfolios worth between £20,000 and £250,000.

Freetrade also has a 4.3-star rating on Trustpilot and offers customer support via email and in-app chat, alongside a solid selection of educational guides and market insights. “Overall, Freetrade is an excellent choice for cost-conscious SIPP investors, particularly investors wanting shares above a wide range of funds,” said Groves.

The next cheapest for smaller portfolios, up to £20,000, is AJ Bell. The cheapest for larger portfolios, up to £250,000, is Interactive Investor.

The below table summarises Kepler’s indicative fee calculations by provider.

^{Source: Kepler Trust Intelligence}

Comparing SIPP: the top SIPPs for customer service

Despite being edged into second place on price (for smaller portfolios), AJ Bell is ranked highest among SIPP providers for customer service. AJ Bell holds the highest Trustpilot rating of 4.9 of any of the SIPP platforms tested, and provides customer support via phone and live chat, alongside extensive research, webinars and podcasts, Groves pointed out.

In terms of fees, AJ Bell has one of the lowest platform fees amongst the mainstream providers both by percentage and tier value, being 0.25% on the first £250,000, 0.1% on the next £250,000 and no fee over £500,000, as well as a competitive trading fee.

“Overall, AJ Bell may appeal to customers looking for a high level of customer service, as well as competitive fees and a broad investment range,” Groves said.

Comparing SIPP: the best overall SIPP

Overall, Interactive Investor took top honours in the Kepler rankings due to its competitive fee structure, broad choice of investments and strong customer support. “The SIPP platform offers customer support via phone and messaging and provides an excellent range of educational content and market analysis. It has a mid-table 4.5-star rating on Trustpilot,” Groves said.

Interactive Investor is one of the few platforms with a flat (rather than percentage-based) platform fee, as well as one of the lowest trading fees amongst the mainstream providers which may appeal to more frequent traders.

“Overall, Interactive Investor is an excellent all-rounder with a wide range of investment options and is a particularly cost-effective option for investors with high-value portfolios,” Groves added.

Source: Kepler Trust Intelligence

How much can I contribute to a SIPP?

Like any pension, SIPPs carry financial benefits in the form of tax relief on your contributions.

These take the form of a 25% government top-up on any contributions you make, provided that these don’t exceed £60,000 (including employer contributions) or 100% of your earnings each tax year.

Note that if you earn more than £260,000, including bonuses and employer pension contributions, your pension allowance will taper down by £1 for every £2 of adjusted income.

This means the highest earners are left with an annual pension allowance of just £10,000.

Craig Rickman, pension expert at Interactive Investor, points out that if you pay higher rates of tax, you might be able to claim an extra 20% or 25% of the total contribution (your payments plus the government top-up) via self-assessment – “helping to trim your annual tax bill and put more money towards your future”.

Here’s a breakdown of the tax benefits available:

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For more on SIPPs, read our guide on How to build your own ‘pot for life’ pension with a SIPP and Saving for retirement: ISAs vs. SIPPs.

A pension is more restrictive than an Isa you can't get at your money until you reach a minimum age (55 at present for most schemes, rising to 57 in 2028) and you will have to pay income tax when you take it out. These disadvantages are offset for many investors by generous up-front tax relief on your contributions.

When you pay money into your pension, the government refunds any income tax you have paid on that money. So, if you pay in £800, the government assumes you paid basic-rate income tax on that money at 20% and refunds that straight into your pension, meaning they add a further £200. If you are a higher-rate or additional-rate taxpayer, you get 20% tax relief back and can claim the rest back via your tax return. That's a big boost to your savings.

Profit from your employer

If you pay into a pension through your workplace, you will also benefit from contributions made on your behalf by your employer. The minimum that your employer has to contribute is 1% of your salary, but this is rising to 2% from April 2018 and 3% in April 2019. Your minimum contribution to a workplace pension will go up from 1% to 3% and 5% at the same times so in a year's time, the total will be 8%.

While this is a good starting point, it will not be enough to fund an adequate retirement, so you will need to set aside more. It may be worth increasing your contributions to your workplace pension many employers will make additional contributions if you pay in more. However, if they don't or if you simply want more flexibility to manage your own investments you can pay into a self-invested personal pension (Sipp) alongside your workplace pension.

There is a limit on how much you can pay into a pension each year and still get tax relief, known as the annual allowance. This applies across all of your pensions schemes in total. This is equal to your relevant UK earnings (for most people, essentially your income from work), capped at a maximum of £40,000 per year (this is the gross figure ie, including the tax relief you'll get in your contributions). Unlike Isas, unused allowances can be rolled forwards for three years if you have sufficient earnings to use them.

If you earn more than £150,000 a year then your annual allowance is tapered away. You lose £1 of your allowance for every £2 you earn over £150,000 up to a maximum cut of £30,000. So, anyone earning over £210,000 a year can only put £10,000 a year into their pension. If you don't have any earnings, you can still contribute up to £2,880, to which the government will add tax relief at 20% (even though you didn't pay tax), giving you a total contribution of up to £3,600.

Taxed when taking your pension

When you reach the age at which you can begin drawing your pension, you can take 25% of your pot as a tax-free lump sum. This doesn't have to be all in one go you can spread it out over a number of years. The rest of your pension can be used to buy an annuity to get a guaranteed income, left invested and drawn down over time or a combination of both options. Either way, it will be taxed as income at your marginal rate in the usual way as you receive it.

A second cap called the lifetime allowance limits how large your pension savings can grow. If you exceed this, you will pay a 25% additional charge if you take the excess as income or 55% as a lump sum. The lifetime allowance is currently £1m, rising to £1.03m in April. If your pension passed £1m before April 2016, you may be entitled to a higher limit check with HM Revenue & Customs.

Our pick for a pension

Best for small and simple

Cavendish Online and Fidelity is good for low-cost, fund-based pensions. There's a custody fee of 0.25% a year, reducing to 0.2% on portfolios over £200,000. This is cost-effective for small pensions as there's no minimum charge and no dealing fees.

Best for large and simple

Flat-fee platforms that charge a fixed annual fee can be good value for bigger portfolios. Share Centre charges £12+VAT per month plus 1% to buy or sell a fund or share (with a minimum of £7.5). Alliance Trust Savings is also competitive for large portfolios.

Best for shares or mixed portfolios

AJ Bell Youinvest, Charles Stanley and Hargreaves Lansdown offer a wider range of investments. They charge an annual custody fee, which is capped for shares, investment trusts and ETFs.

Best for property and other assets

If you want to hold exotic assets such as commercial property, look at Sipp, Carey Pension Trustees or Corporate & Professional. AJ Bell's Platinum Sipp also lets you invest in property.

Best for a Lifetime Isa

The lifetime Isa is a hybrid of a pension and an Isa. AJ Bell and Hargreaves Lansdown are the main options.