What the Autumn Budget could mean for pensions

As the Government attempts to balance the books in the upcoming Autumn Budget on November 26 and tackle the 30–50 billion black hole in the country’s finances, speculation is mounting about how the Treasury plans to raise this cash.

Part of the difficulty of this year’s Budget stems from the Chancellor’s self-imposed “non-negotiable” fiscal rules. These rules dictate that by the end of the parliamentary term; national debt must be falling as a share of the economy. They also require day-to-day government spending to be balanced, meaning it must be paid for by tax income rather than borrowing.

The Government has promised not to raise the headline rates of National Insurance, income tax or VAT on working people. However, recent comments by Reeves that “the world has changed”, have made this commitment unclear. The Government has also been very cautious about a wealth tax, reportedly worried that it would push the wealthiest contributors to relocate.

Against this backdrop, one area that is speculated to come under the microscope is pensions.

Restrictions to salary sacrifice options

Some employers allow you to sacrifice a portion of your salary for another benefit – primarily a pension contribution. Because the money is paid directly into your pension, neither the employee nor the employer pays National Insurance Contributions (NICs) on that amount.

If the Government were to remove this national insurance relief, it could reduce the incentive to offer such schemes. The Institute for Fiscal Studies (IFS) claims that introducing employer NICs on these contributions at the full rate of 13.8% could raise £17 billion.

Capping tax relief

Currently, eligible personal pension contributions receive tax relief as a 20% top-up from the government automatically. Higher and additional rate taxpayers can then claim further relief through their self-assessments to bring their total relief to 40% or 45%. The annual allowance for tax relieved contributions is the lower of your relevant UK earnings (usually your salary) or £60,000, and you may be able to carry forward unused allowance from the previous three years.

There is speculation that the amount of tax relief could be capped at a flat rate, for instance at 30% or even 20%. This would significantly dampen the incentive to higher earners to save into a pension. Doing so could lend to a £15 billion saving, according to the IFS.

Reducing the tax-free cash amount

When you access your defined contribution (DC) pension (from age 55, rising to 57 in 2028), you can currently withdraw 25% of your pot completely tax-free, up to the Lump Sum Allowance (LSA) of £268,275. When the full amount of tax-free cash is taken in one go, this is also known as the Pension Commencement Lump Sum (PCLS). It has been rumoured that this key perk could be reduced.

Similar fears ahead of the last Budget led to a record number of early pension withdrawals. According to the Financial Conduct Authority (FCA), in the last financial year there was a 63% increase in the taking of tax-free lump sums on the previous year, and more people accessed their pensions for the first time than ever before.

How realistic are pension tax changes?

Official statistics estimate that up to 43% of the population aren’t saving enough for retirement, which presents a significant future burden on the state. The Government has been working to improve pension saving and retirement outcomes for the UK’s ageing population and making pensions less attractive to investors would undermine these efforts.

Any such moves would be highly unpopular with diligent savers, too, who have already thought ahead about their long-term retirement plans.

It is also difficult to see how major structural changes could come into effect overnight, as they would require a significant overhaul across thousands of providers and HMRC systems. It is more likely that if significant changes like those rumoured were to be announced, they’d be done so well in advance to give the industry and the public time to prepare. This is similar to the Inheritance Tax changes announced in last year’s Budget, which won’t take effect until April 2027.

Peter Rice, Wealth Manager at Moneyfarm said: “While potential pension changes in the Autumn Budget have understandably raised concerns among savers, it’s vital to maintain perspective and avoid making hasty, often irreversible decisions that could impact long-term retirement goals. The fundamentals of pension planning remain constant regardless of policy adjustments. 

“Pension policies are ever evolving and speculation around tax relief or salary sacrifice changes is common, any potential changes shouldn’t act as a deterrent to achieving positive long-term retirement outcomes. Instead, use this as an opportune moment to review your pension strategy, ensuring it stays aligned with your retirement objectives and that there is an achievable pathway to achieving these goals.”