In a significant announcement ahead of the Autumn Statement, Chancellor Rachel Reeves has definitively ruled out implementing a feared reduction to the tax-free pension lump sum allowance. This decision will come as a substantial relief to millions of pension savers across the United Kingdom who had been concerned about potential changes to their retirement funds.
Budget Certainty for Pension Savers
The Autumn Budget is scheduled for delivery on November 26, and Treasury officials have explicitly confirmed to sources that no cuts to the pension lump sum limit will be part of the Chancellor's fiscal plans. This move directly addresses rumours that had been circulating in the lead-up to the Budget, which had caused anxiety among those planning their retirement finances.
Jon Greer, head of retirement policy at wealth management firm Quilter, described the Chancellor's clarification as "reassuring". He noted, "The decision to rule it out could arguably have come sooner, given the rumours surrounding potential changes has resulted in many people making decisions for fear of missing out on their tax-free cash in the lead up to this Budget and the last."
Alternative Revenue Plans Emerge
While savers can breathe easier regarding their lump sums, the Treasury is reportedly focusing its attention on a different aspect of pension taxation. The Chancellor is understood to be preparing to scale back tax breaks for both employees and employers who contribute to workplace pensions.
This alternative measure, which could cost the average worker approximately £210 per year, would involve a proposed cap on salary sacrifice arrangements before National Insurance becomes payable. Mr. Greer commented on this shift in focus, stating, "The Treasury appears to be setting its sights at the other end of the spectrum. The rumoured cap on salary sacrifice... would rake in a considerable amount for the Government but there is a real risk that it could deter people from saving appropriately for their future."
Industry Reaction and Call for Stability
Tom Selby, a director at the investment platform AJ Bell, welcomed the decision to leave the pension lump sum untouched. He said, "Attacking tax-free cash at the Budget would have been a massive own goal from the Chancellor, raising little money and causing uproar from young and old alike."
However, Selby also emphasised the need for long-term consistency, adding, "No change to tax-free cash entitlements at the Budget is clearly good news but what we really need from this government is a commitment to long-term stability so people can plan for the future with confidence." This sentiment underscores a broader desire within the financial sector for predictable pension policy that does not change with every Budget cycle.
