As the Autumn Budget approaches on 26 November, speculation is mounting that Chancellor Rachel Reeves could target pensions as part of a wider fiscal reset.
Rumours suggest potential reforms to pension tax relief, salary sacrifice schemes, and even the long-standing 25% tax-free lump sum may be heading toward the UK pension sector, prompting concern among savers and employers alike. This is according to pensions specialist, Penfold.
According to the Institute for Fiscal Studies (IFS), the government faces a £22 billion funding gap. With the Chancellor having ruled out increases to income tax, VAT, or National Insurance, attention is turning to more technical areas of the tax system – including the generous reliefs that encourage pension saving.
Chris Eastwood, CEO and co-founder of Penfold, stated, “Tinkering with pension benefits might offer a short-term fix for the Treasury, but it risks long-term harm to people’s financial futures. Pension tax relief and incentives are essential to help people across the UK retire with confidence and security.”
Penfold identified a number of areas the Government may review in the Budget:
Salary sacrifice
Currently, many employees boost their pension contributions through salary sacrifice, reducing both their own and their employer’s National Insurance bill.
However, Treasury insiders are reportedly exploring ways to remove employer NI exemptions, a change that could raise up to £17 billion but would reduce the incentive for businesses to offer the benefit. Any reform of this scale would likely require consultation and phased implementation.
Pension tax relief
At present, pension contributions attract tax relief at the saver’s marginal rate – 20%, 40% or 45%, depending on income. Analysts suggest the government may introduce a flat rate of around 30% to simplify the system and reduce costs, potentially generating £15 billion in additional revenue. Such a move would benefit basic-rate taxpayers but reduce relief for higher earners.
Tax-free cash allowance
The 25% tax-free lump sum, capped at £268,275, has long been viewed as a cornerstone of UK pension policy.
Recent reports from the BBC suggest the allowance could be reduced to raise funds without breaching headline tax promises – though no official plans have been confirmed.
Lifetime allowance
A possible return of the pension lifetime allowance, abolished in 2023, is also being discussed. Reintroducing a cap on the amount of pension wealth that can grow tax-free would primarily affect higher earners and long-term savers.
Eastwood added, “We are urging for calm and for clarity. We understand that this kind of speculation can feel unsettling, especially when retirement plans are at stake. At Penfold, we’re keeping a close eye on the Autumn Budget and will guide our customers through any confirmed changes with clear, practical support.”