Analysts fear the Chancellor will turn to pension reforms as a stealthy way to raise revenue without directly hiking taxes on income or spending.
Chancellor Rachel Reeves (Image: Getty)
Rachel Reeves is preparing to use Britain’s pensions as a “political piggy bank” to plug a £30 billion hole in the public finances at next month’s Autumn Budget, financial experts have claimed. With the Budget due on November 26, analysts fear the Chancellor will turn to pension reforms as a stealthy way to raise revenue without directly hiking taxes on income or spending.
Proposals being discussed include cutting the tax-free lump sum allowance, reintroducing a soft lifetime cap for higher earners, imposing a flat-rate tax relief of 25–30 percent, and tightening salary sacrifice rules — all potentially lucrative for the Treasury but damaging for savers and employers. Luke James, Tax Director at Sheffield-based Gravitate Accounting, warned: “Pensions will be used as a political piggy bank. These reforms may look like simple revenue-raisers, but each carries long-term consequences. Cutting the tax-free lump sum or reintroducing a lifetime cap would erode trust and discourage saving, while a flat-rate relief could penalise higher earners without meaningfully helping lower-income contributors.
He continued: “Tightening salary sacrifice or raising employer contributions would increase costs for businesses already under enormous pressure. Taken together, these measures risk signalling that pensions are a short-term fiscal lever rather than a pillar of financial security.
“Tax policy should encourage consistent saving, not create uncertainty. Fairness must be balanced with stability — otherwise future retirees will pay the price for today’s Budget gap.”
Antonia Medlicott, Founder and Managing Director of Investing Insiders, said: “When governments are under fiscal pressure, pensions and pension tax relief are always prime candidates for reform. Tax relief alone costs the Treasury tens of billions per year, and the huge wealth locked in pensions is hard for any cash-strapped government to ignore.
“But the kinds of reforms on the table — shrinking the tax-free lump sum, introducing flat-rate relief, withdrawing higher-rate benefits — all come with major risks. The Chancellor risks undermining trust in the system, deterring saving, and pushing higher earners into riskier, unregulated products as they look for alternative ways to protect their wealth.
Prime Minister Sir Keir Starmer (Image: Getty)
“If people rush to withdraw money to beat the changes, pension providers could be forced to liquidate assets quickly, sending shockwaves through the financial system. This isn’t just a pensions issue — it’s a systemic risk.”
Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, said: “I do think pensions will be changed in this Budget. That might help plug a short-term fiscal gap, but it’s deeply damaging for how safe people feel about their money. Confidence in the system is already fragile, and every tweak makes people less likely to save for the future.
“The constant pension tinkering does real psychological damage. When people stop trusting the system, they stop engaging with it — and that’s the last thing the country needs. These reforms might ease short-term pain for the Government, but they’ll create long-term pain for millions of retirees.”
Rob Mansfield, Independent Financial Adviser at Rootes Wealth Management, said: “Pensions are a politician’s favourite football to kick. Restricting tax-free cash would be devastating, but a flat-rate relief at 25–30 percent is probably the easiest and fairest lever for the Chancellor to pull. It fits Labour’s message of helping working people and doesn’t hit benefits already built up.
Pensions may be used as a ‘piggy bank’, experts have warned (Image: Getty)
“The real challenge is balancing the treatment of existing benefits with future ones — ideally you’d separate the two, but that adds complexity. Pensions need stability, not constant short-term policy shifts.”
Ross Lacey, Director at Fairview Financial Management, said: “We’d like to see rules that stop pensions being used as a political lever.
“There’s already huge uncertainty around what people can and can’t do. It’s no surprise savers are shying away from proper retirement planning.
“That uncertainty just drives people into the arms of dodgy, unregulated investment schemes promising the world but delivering nothing but disappointment.”
Scott Gallacher, Director at Rowley Turton Independent Financial Advisers in Leicester, said: “Pensions have been treated as a political piggy bank throughout my financial career — from Gordon Brown’s removal of dividend tax credits to the Lifetime Allowance, and now Ms Reeves‘ reported plan to apply inheritance tax to pensions.
“It’s easy to see why: unlike other tax rises, these don’t hit wage packets or shopping bills, so they’re a stealthy way to raise revenue. But the long-term impact is profound, not just for savers but for UK plc.
“The Chancellor talks about a growth and investment agenda, yet these constant raids on pensions have driven UK funds’ exposure to domestic equities to record lows, starving British businesses of the very capital that should be powering economic recovery.”
As the Budget approaches, industry figures are urging the Chancellor to resist short-term fixes that could jeopardise long-term stability.
Addressing the Labour Party conference earlier this month, Ms Reeves said: “I promised you we would run the economy differently.
“No longer would we turn a blind eye to where things are made and who makes them. Or shrug our shoulders when the national interest is on the line.
“Because a strong economy must rest on strong foundations. I call that approach ‘securonomics’.”
