24 FEB 2026

20 Years After A-Day: How the 2004 Finance Act Still Shapes UK Pensions

By IFGL Pensions Technical Manager Steve Berridge

Gordon Brown, it is probably fair to say, is remembered by many with mixed emotions. Without doubt one of the most important chancellors of the last half a century, for ten years he managed the country’s finances and during that time brought in some fairly major changes. His first change was to give the Bank of England its independence when it came to interest rate policy. This was perhaps the most fundamental economic measure he introduced. On the other hand, he is also remembered for the selling of the UK Gold reserves, a decision which with the benefit of hindsight appears to have been rather a bad one.

In the world of pensions however, Gordon Brown is remembered for arguably the biggest and most far-reaching legislative changes ever seen. The Finance Act of 2004 still governs so much of what we in the pension world do, standing over the landscape like a colossus. It introduced once in a generation changes on 6th April 2006, a day forever known as “A Day” and as we approach its 20th anniversary it seems timely to remember and take stock.

Perhaps the most remembered change from A Day, was the introduction of the lifetime allowance. Prior to April 2006, you could theoretically accumulate unlimited pension benefits which were shielded from the usual investment related charges such as Capital Gains Tax and Dividend Tax. A Day introduced a new cap of £1,500,000, beyond which charges would apply when you came to access your pension benefits. The lifetime allowance of course has been removed in recent years, except that it hasn’t really. The new lump sum and death benefit allowance (and lump sum allowance) still restrict the amount of non-taxable lump sum benefits that can be paid from pensions, but the main change being the removal of the lifetime allowance charge in 2023.

The second biggest change was the rationalisation of the tax-free cash sum. Those of us old enough to remember the “old pension world” will remember grappling with complicated calculations on occupational pension schemes based on multiples of lengths of service and different tax regimes. That was all swept away with a one size fits all 25% tax-free cash sum payment. This 25% remains the benchmark today with the lump sum allowance effectively keeping the £268,275 limit in place which has been there since the lifetime allowance limit was frozen in 2018.

Thirdly and perhaps less positively, A Day introduced the concept of “unauthorised payments”, a minefield of a subject which has kept pension lawyers and taxation experts in work ever since. Again, this is an area of pension taxation which hasn’t really changed fundamentally since.

Finally, A Day established without doubt, the areas of investment which were off limits for pension schemes. There had been talk of allowing pensions to invest in residential property and other specialist investments such as works of art and classic cars, but in the event the Government pulled back from such changes. So our taxable property rules (which again can be so complicated), have been enshrined by this one piece of legislation.

So has the 2004 Finance Act stood the test of time? You would have to say yes it has. The Coalition Government in 2015 introduced its pension freedoms which fundamentally changed how people could access their pension benefits, but other than this, in 14 years of Government, the Conservatives did not rewrite the rule book to any great extent, beyond overhauling the lifetime allowance system. Even now, the Labour Government, despite rumours to the contrary, has not really made sweeping changes, beyond the introduction of inheritance tax applying to discretionary pension schemes from April 2027.

We live in a fast-changing world, that much is beyond doubt. A world where a new political party launched last week already has more members on board than one which traces its roots back to 1859. But in the pension world, those of us in the technical, tax, or legal space still find ourselves in 2026 frequently referring to a finance act written more than 20 years previously. So perhaps if only for the acknowledgement of its stubborn longevity, a reluctant glass will be raised on April 6th to remember the 20th anniversary of a generational piece of legislation which still impacts so much of what we can and cannot do with our pensions.