For years, reaching a £1 million pension pot has symbolised success, serving as the benchmark for financial freedom. But in 2025, that milestone could quietly trigger unnecessary taxes, reduced flexibility, and a smaller legacy for your family.
If you’re a business owner or approaching retirement, this isn’t just a theoretical risk; it’s a planning blind spot that could cost you six figures.
Why £1 million isn’t what it used to be
The old Lifetime Allowance (LTA) may have been scrapped, but the system hasn’t been simplified; it’s been re-shaped.
The previous £1,073,100 limit still defines how much of your pension can be taken tax-free (usually capped at £268,275). Anything beyond that is taxed at your marginal rate when drawn. The upcoming Autumn Budget is widely expected to tighten these rules further, possibly reducing the tax-free lump sum or restricting higher-rate tax relief on contributions.
For those with long service, strong investment growth or generous employer contributions, the maths gets uncomfortable fast.
How the mistake happens
The danger isn’t reckless investing; it’s inaction.
A pension that quietly compounds over 20-30 years can cross the £1 million line long before you start drawing it. Many business owners and professionals don’t notice until they’re crystallising benefits, at which point their options are limited and HMRC is waiting.
Why business owners are especially exposed
- Employer contributions – Large one-off or end-of-year pension contributions can become inefficient if tax relief is capped in the 2025 Budget.
- Tapered allowances – High earnings can already reduce the annual pension allowance from £60,000 down to as little as £10,000.
- Business exits – If you sell or step back from your company, your pension and sale proceeds may both push you into higher tax brackets at the same time.
- Inheritance rules – From April 2027, unused pension pots may count toward your estate for inheritance tax, removing one of the last remaining advantages.
What pre-retirees need to consider
If you’re in your 50s or early 60s, you’re entering a window where you can still act, but timing matters.
- Model your future pot – Growth projections can show whether you’re likely to exceed £1 million before retirement.
- Sequence your withdrawals – Taking benefits in stages can help manage tax exposure and retain flexibility.
- Review protections – Some people still qualify for historic Lifetime Allowance protections, which could preserve valuable tax advantages.
- Balance your wrappers – ISAs, GIAs and other vehicles may offer more control and predictability than overshooting your pension allowance.
What to do now
- Get a clear valuation of all pensions and forecast future growth.
- Scenario plan for potential Budget changes, lower tax-free cash, capped relief, or higher income tax.
- Diversify your retirement income across pensions, ISAs, and investments held personally or within your company.
- Review estate plans before new inheritance rules take effect.
The takeaway
A £1 million pension sounds like a success story. But without a strategy, it can become a tax liability.
Whether you’re running a business, planning an exit, or approaching retirement, you need to know where you stand and how to adapt before the rules shift again.
A structured review now could protect the wealth you’ve spent decades building.
If your pension is approaching or beyond £750,000, it’s time for a clear, professional review. We’ll help you understand your position, model future growth and design a withdrawal or protection strategy that keeps more of your money working for you – not HMRC.
Book a Pension Clarity Review with 1stFF and take control before the next Budget does it for you.
This article provides general information only and does not constitute financial advice. For personalised guidance based on your specific circumstances, please contact our office to arrange a consultation. Learn more
