Pension tax fears boost diversified retirement plans

Uncertainty over how future governments might tax pensions is pushing financial advisers to recommend larger, more varied retirement savings.

Wealth Club, an investment service, said an ageing population will likely force governments to seek new revenue sources, making pension tax rules harder to predict. The warning followed proposals from the Institute for Public Policy Research to extend National Insurance to pensioners’ incomes, shifting more tax responsibility to older people and those with wealth.

BlackRock’s stake in Legal & General crosses 10%

The US asset manager BlackRock has more than doubled its holding in Legal & General, raising its total stake above 10% for the first time. The position reached 10.03% on August 26, up from 5.07% in its last disclosure.

Of the new stake, 8.08% carries voting rights, equal to nearly 447 million shares.

The IPPR’s proposal is one of several recent ideas that could change how retirement income is taxed. Wealth Club said investors who depend only on traditional pension pots may face unexpected tax bills later.

Spreading savings across ISAs, property, and other assets could reduce risks if pension tax rules shift. But advisers warn that such strategies need careful planning, since different assets have their own tax and liquidity challenges.

One issue is the complexity of the UK’s pension system. Steve Webb, a partner at pension consultants LCP, recently pointed out that nearly a million low earners may soon receive letters from HMRC inviting them to claim a little-known payment. Many, he said, will doubt an unsolicited offer for “free money.”

If basic pension entitlements are misunderstood, the case for diversification becomes harder to make. Investors may struggle to balance tax efficiency, accessibility, and growth without professional help.

The push for broader retirement portfolios also reflects other risks. Capital gains tax receipts reached a record £24.2 billion in the 2024-25 tax year, an 89% increase from the previous year. The number of taxpayers reporting gains rose by 45%, reaching 584,000, the highest on record. While these figures show a strong asset market, they also mean more people are being taxed, adding uncertainty for savers.

For defined benefit pension schemes, the government’s recent consultation on surplus flexibilities has introduced another variable. TPT Retirement Solutions, a major workplace pension provider, supports unlocking surplus funds in well-funded schemes but warns that implementation could vary. It has asked for clearer guidance from the Department for Work and Pensions and The Pensions Regulator to ensure consistency across multi-employer schemes.

BlackRock’s larger stake in Legal & General may reflect broader trends in asset management. As firms seek scale, consolidation is speeding up. For individual investors, the bigger concern is how these changes, along with tax policy debates, are altering retirement planning. The challenge is not just how to save, but where to save and how to protect those savings from future policy shifts.

Advisers’ message remains straightforward: diversify, but do not assume any single approach is safe. The only certainty in retirement planning is that the rules will keep changing.