In this feature, John Dowding (pictured), technical director at financial advice firm Morgan Lloyd, looks at what levers the UK government may look to pull in the upcoming Autumn Budget beyond tinkering with pension tax-free cash.
In her upcoming Autumn Budget, chancellor Rachel Reeves has the unenviable task of trying to navigate a reported deficit of £40bn while minimising interference with the government’s growth agenda and spending commitments.
There isn’t much room for her to manoeuvre in most areas which could leave pensions in the spotlight.
We all know what the rumour mill can be like in the run up to the Budget and it’s already hard to escape some of the panicked headlines about tax-free pension cash.
No one needs reminding that similar speculation last year led to a lot of people withdrawing lump sums based on rumour, only to find out on Budget day that tax-free cash would actually be left untouched.
If speculation continues to build once again, clients will no doubt come to advice and pensions professionals with questions and concerns. Of course, our job as an industry is to reassure clients, but equally, the same old ‘keep calm and carry on’ message isn’t always enough.
To avoid a repeat of last year, we hope the Treasury will issue a clear statement ahead of the Budget. In the meantime, staying informed about the detail of potential changes and planning for possible scenarios will be absolutely essential for some clients.
It’s also important to look beyond tax-free cash because it is by no means the only option on the table. Indeed, there are other changes which look more likely at present…
Lifetime Allowance (LTA)
The LTA, which previously capped pension savings, was abolished in April 2024 by the previous Conservative government. Reeves has described this decision to abolish the LTA as “a tax cut to the wealthiest” and, although she has since softened her stance, the need to raise money may force her hand.
It almost goes without saying that if the LTA makes a comeback, it will have a serious impact for many people who receive advice. And even if it is not fully reinstated, other limits like a cap on tax-free growth, ceiling on withdrawals, or a new form of lifetime testing could be introduced.
Pension tax relief
Pension contributions benefit from generous tax relief, particularly for higher and additional rate taxpayers.
One widely discussed reform would involve simplifying this tax relief by implementing a 30% flat rate. Such a move would benefit basic-rate payers (currently 20%) but higher earners may lose thousands of pounds worth of relief.
Salary sacrifice
Another area potentially under review is pension salary sacrifice, which could see benefits restricted or even scrapped altogether.
Salary sacrifice is not only a popular employee benefit for higher earners, it has also become more attractive to employers since the increases to NI rates back in April 2025, with a recent poll by Employee Benefits reporting that almost a third of employers now offer this employee benefit to their staff.
Tax-free lump sum
We’ve deliberately kept tax-free pension cash until last because it has been talked about widely and advisers will be familiar with much of the detail already.
But, as a recap, rumoured reforms include reducing the maximum percentage (e.g. from 25% to 20% or lower), abolishing the tax-free lump sum for future contributions and introducing a means test or restricting eligibility for certain groups.
Such changes would be most felt by clients who have factored the lump sum into their plans for debt repayment, property purchase, or simply a cash buffer as part of retirement planning.
Monitoring the situation
We would never recommend advisers or clients make any rushed decisions and, while none of these changes have been confirmed, there are still things advisers can do to help clients feel prepared for what may lie ahead.
These include reviewing clients’ contribution strategies, especially for higher earners, and considering how a clients’ cashflow and goals may be impacted by any changes to tax-free cash.
It may be appropriate to think about maximising current reliefs before any reforms take effect or crystallising benefits sooner rather than later, if a client is close to retirement. And last but not least, you may also want to consider how SIPPs or SSASs could be impacted by changes to tax relief.
