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Speculation is growing that we soon could see significant changes to pensions in Labour’s second Budget, including some of the valuable tax benefits that they currently offer, as the Chancellor Rachel Reeves seeks to reduce the budget deficit.
Some commentators have suggested we might see current generous tax relief on pension contributions restricted, possibly to a flat rate, whilst others think we could see the amount you can take tax-free from your pension reduced. It’s worth bearing in mind, however, that until Budget day itself, no one knows exactly what will be unveiled, so you should think very carefully before making any knee-jerk decisions at this point.
Here’s what we know so far, and why it’s really important not to let conjecture deter you from saving for the future.
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If you’re considering seeking professional financial advice on the options available to you, nationwide advice firm HUB Financial Solutions is offering you a free initial consultation with an expert retirement specialist. There’s no obligation; it’s to help you understand your options and how our services work. If you choose to receive paid-for regulated advice, we’ll explain how that works and the fees involved.
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Triple lock to stay
One commitment that Labour has made previously is that it will maintain the pension triple lock. This means that the State Pension each year is guaranteed to rise by the highest of September’s inflation figure, earnings growth between May and July, or 2.5%.
The State Pension is therefore expected to rise by 4.7% next April in line with earnings growth. This would take the new State Pension to £241.05 a week, and the full basic State Pension to £184.75 a week. You can learn more about the triple lock and why it matters in our article What is the pension triple lock? and about how the State Pension works in our guide How the State Pension works.
Will I still be able to take my 25% tax-free cash?
Many people are concerned that the November Budget might see Rachel Reeves clamp down on current rules, which allow you to take 25% of your pension savings tax-free from the age of 55 (rising to 57 from 2028).
At the moment, you can take a maximum pension tax-free cash lump sum of £268,275 out of your pension, or 25% of the old Lifetime Allowance. This is known as your Lump Sum Allowance (LSA). Find out more in our article How much tax-free cash can I take from my pension?
Scrapping these rules would prove hugely unpopular with pension savers, and could be perceived as a disincentive to put money away for retirement, so it seems unlikely that Labour would do away with them altogether. However, it is possible that the new government might look at reducing the maximum tax-free lump sum you can take, perhaps to £150,000 or £100,000.
Bear in mind that taking out your 25% tax-free lump sum, especially if you do this early on, can have a significant impact on your retirement income later on, so you should seek professional financial advice on the best course of action to take based on your individual circumstances. You can read about all the pros and cons in our guide Should I take a tax-free lump sum from my pension?
Will pension tax relief remain the same?
Unlike the Conservatives, Labour made no pledges in the run-up to the election that pension tax relief would remain untouched.
Rachel Reeves has previously said she would support the introduction of a flat rate of pension tax relief, whilst benefiting basic rate taxpayers, would leave higher and additional rate taxpayers worse off.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The current pension tax relief system provides a great incentive to save into a pension, with contributions attracting relief at your marginal rate. This means someone paying a higher rate tax gets up to 40% relief on their contributions and an additional rate taxpayer gets up to 45%.
“However, if the government opts for a flat rate of pension tax relief – say of 30% – then these groups would be badly hit. It means a pension contribution of £1,000 would cost £700 rather than £600 or £550 as it currently does. However, it would be better news for those who pay basic rate tax as the same contribution would currently cost them £800.”
It’s very unlikely that any changes to pension tax relief, if introduced, would be retrospective, so tax relief you’ve benefited from in the past should be safe. However, if you’re worried that tax relief could be restricted in future, you may want to consider making the most of current rules now.
At the moment, you can earn tax relief on pension contributions of up to 100% of your earnings, or £60,000 a year, whichever is lower. If you’re earning £70,000 a year, for example, that means you’d be able to pay up to £60,000 of this into your pension.
Any pension payments you make over the current £60,000 threshold are subject to the usual income tax rates. You can also carry forward any unused Annual Allowances from the previous three years, provided you belonged to a pension scheme during those years. You can learn more about carry forward in our guide Pension carry forward explained.
Impact on pension allowances
There’s also the possibility that we could see the reintroduction of the Lifetime Allowance, which was the maximum amount you could save into your pensions over your lifetime, without having to pay any extra tax charges when you take money out. This was abolished by the then-Conservative Chancellor Jeremy Hunt in April 2024 to encourage pension savers to stay in the workplace longer and continue paying into their pensions.
At one point prior to being elected, Labour said it wanted to reinstate the Allowance to prevent high earners from enjoying this tax break, but its reintroduction would prove incredibly complex and could result in the highest earners stopping work early to avoid being hit by tax charges.
Find out more about pension allowances in our articles Labour u-turns on pension Lifetime Allowance and How do pension allowances work?
Auto-enrolment shake-up
Millions of people aren’t putting away nearly enough to provide them with a comfortable retirement, so the Labour government could potentially announce higher auto-enrolment contribution limits or expand auto-enrolment further to include more workers.
At the moment, if you’ve been auto-enrolled into your employer’s workplace pension scheme, the minimum contribution is 8% of ‘qualifying earnings’. Of that 8%, your employer can’t contribute less than 3%, but they can pay as much of the 8% as they want. If you’re not sure how much you should be putting away for the future, read our article How much should I save for retirement?
Rachel Vahey, head of public policy at AJ Bell, said: “The government may take this opportunity to implement changes to lower the automatic enrolment age to 18 and start counting pension contributions from the first pound of salary. It could even start thinking about the question of pension adequacy and how to scale up minimum contribution rates beyond the current level of 8% of qualifying earnings.”
You can find out more about how the system works at the moment in our guide How does pension auto-enrolment work?
Finally…
It’s vital not to make any panic decisions based on what you think might happen to the pensions system in the Budget, and if you’re unsure how to proceed, to seek professional advice.
Philip Lewis, Head of Financial Planning Advice at leading wealth management firm Evelyn Partners, said: “Those who are accessing their pension fund without taking advice could be making some serious errors that would leave them counting the cost later in retirement. Moreover, HM Revenue and Customs has tightened up the guidance since the last Budget, so if you put a request in to take your tax-free cash lump sum, this time you won’t be able to reverse that decision if no changes are announced.”’
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If you’re considering seeking professional financial advice on the options available to you, nationwide advice firm HUB Financial Solutions is offering you a free initial consultation with an expert retirement specialist. There’s no obligation; it’s to help you understand your options and how our services work. If you choose to receive paid-for regulated advice, we’ll explain how that works and the fees involved.
HUB Financial Solutions is rated ‘Excellent’ on Trustpilot (Mar 2026). With investing, your capital is at risk.
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