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With the conflict in the Middle East fuelling a renewed cost-of-living squeeze, Chancellor John Healey faces a difficult balancing act when he delivers his first Autumn Budget on 28 October. New analysis from the Institute for Fiscal Studies (IFS) warns that the Government could need to find an additional £25 billion a year by 2030-31 to avoid real-terms cuts to public services, with spending pressures potentially reaching £35 billion if higher defence spending and other departmental costs are factored in. |
With household budgets already squeezed by rising energy prices and falling real earnings, the Chancellor faces difficult choices over tax, spending and borrowing. Some pension reforms are already scheduled, while other tax proposals remain the subject of speculation. PensionBee has consistently called for simplicity, clarity and stability rather than repeated changes that undermine confidence in retirement saving. Maike Currie, VP Personal Finance at PensionBee, comments: “Former US Defence Secretary Donald Rumsfeld famously spoke of known knowns, known unknowns and unknown unknowns. Every Budget has its share of all three. What we do know is that the Chancellor has considerably less room for manoeuvre, but Britain’s pension savers should not become an easy target for plugging holes in the Treasury’s finances, especially when most people simply aren’t saving enough for retirement.” The known knowns: Inheritance Tax, salary sacrifice, ISA reform and the Triple Lock
Significant changes are already heading our way. From April 2027, most unused pensions and death benefits will enter the Inheritance Tax net and Cash ISA allowances will change. Salary sacrifice reforms follow in April 2029, while Prime Minister Andy Burnham has announced plans to replace the State Pension Triple Lock with a Double Lock from April 2030.
State Pension: The Triple Lock becomes a ‘Double-and-a-Half Lock’
“From April 2030, the Triple Lock will effectively become a ‘Double-and-a-Half Lock’, with the State Pension rising by the higher of inflation or 2.5%, plus an earnings-linked safeguard to prevent it falling behind average wages over time. This is ultimately a trade-off: pensioners giving up the earnings protection of the Triple Lock in return for greater protection from potentially catastrophic care costs through a proposed National Care Service. But without earnings growth in the annual formula, we need clarity on how the Government will honour its promise to maintain the State Pension’s value relative to wages and how exactly any savings would be diverted to improved care.
“There is also the issue of tax. With the full new State Pension set to exceed the frozen Personal Allowance from next April, it makes little sense to give pensioners an increase with one hand, only to claw some of it back with the other. The Government has repeatedly promised clarity on how it will prevent pensioners from being caught in this tax trap, with further detail expected at the Budget. Pensioners have waited long enough. This Budget must finally provide some concrete answers.”
Inheritance Tax: Rethinking the retirement playbook
“Inheritance Tax is often described as Britain's most hated tax. It touches on something deeply personal: what we leave behind for the people we love. For years, wealthier retirees were encouraged to spend their ISAs first and leave pensions untouched. But from April 2027, most unused pensions and death benefits will enter the IHT net, meaning it’s time to rethink the old financial planning playbook.
“Spending pension money first or making gifts earlier may make sense for some, but withdrawals can trigger Income Tax, and gifts have their own set of rules. PensionBee research shows more than a quarter of savers would consider drawing pension money earlier. The danger is that people make irreversible decisions to avoid an inheritance tax bill, only to leave themselves short in retirement. There may also be unintended consequences for those with less in housing assets and more in their pension.”
Salary sacrifice: Less generous from April 2029
“From April 2029, only the first £2,000 of annual pension contributions through salary sacrifice will retain the National Insurance exemption. Capping salary sacrifice rather than scrapping it was the lesser of two evils, but it still sends the wrong message when we should be encouraging people to save more, not less. Employers will need to provide clear guidance to employees so changes to pension arrangements don’t leave employees worse off or missing out on valuable tax relief.”
ISA reform: Cash ISAs and the Lifetime ISA
“From April 2027, the Cash ISA allowance for under-65s is due to fall from £20,000 to £12,000, while older savers retain the full cash allowance. You don’t persuade people to eat more meat by rationing their vegetables. Saving was never the problem; the challenge is giving people the confidence to invest.
“The Lifetime ISA looks set to be replaced by a first-time buyer ISA that risks giving savers less: a Government bonus paid only when they buy, missing out on potential investment growth, and without a retirement-saving option. That could particularly hurt self-employed and gig-economy workers without workplace pensions. One proposal could be to allow existing LISA savers to roll their money into a pension without penalty, preserving their Government bonus and retirement savings.”
The known unknowns: Capital Gains Tax, frozen thresholds and property taxes
The Chancellor’s search for revenue has fuelled speculation about changes to Capital Gains Tax, property taxation and pension allowances. Meanwhile, frozen Income Tax thresholds continue to increase the tax burden without changes to headline rates.
Frozen Personal Allowance: Tax by stealth
The Personal Allowance remains frozen at £12,570 until April 2031. HMRC estimates 7.7 million people will pay higher-rate tax in 2026/27, around 1.9 million more than in 2023/24. PensionBee research found 69% of savers want the allowance unfrozen. Frozen thresholds are one of the most powerful forms of tax by stealth, quietly dragging more people into higher tax bands as wages and pensions rise. For working savers, understanding your tax band and making full use of pension tax relief and available allowances is becoming increasingly important, not least for those at the margin between one band and the next.
Capital Gains Tax: Will rates be aligned with Income Tax?
One recurring Budget rumour is the equalisation of Capital Gains Tax with Income Tax. Increasing CGT up to 40% or 45% is not the same as sensible tax reform. CGT changes behaviour, and significant hikes can reduce, rather than increase, total tax revenue. Investors can sell early ahead of a rise, simply hold on to assets when rates become too high, and there could be a flight on capital. The Chancellor needs to consider the damage that could be done, and what higher rates would actually raise, not just what they might raise on paper.”
Property taxation: Extending the mansion tax
A High Value Council Tax Surcharge is due to take effect from April 2028 on homes worth £2 million or more. While there had been speculation that the threshold could be lowered to £1.5 million, some reports now suggest the Chancellor has ruled out the move, sparing an estimated 130,000 properties from the additional charge. Changes to Stamp Duty and the tax treatment of main residences have also been floated.
The unknown unknowns: Unintended consequences for pensions
Beyond the immediate revenue raised, policy changes can have lasting effects on saving behaviour, employer contributions and retirement outcomes. Speculation continues over cuts to tax-free cash, changes to pension tax relief, reductions in allowances and reinstating the Lifetime Allowance. Some of these have been wheeled out ahead of successive Budgets, including in 2024 and 2025, only to disappear when the Chancellor opens the red box.
Currie concludes: “The unknown unknowns are the consequences we may not fully appreciate until years down the line. Speculation alone can do damage, prompting savers to withdraw money early, change contributions or rethink retirement plans.
“Pensions are a long-term commitment. People save into them over decades, making decisions based on the rules in place. Constant speculation and shifting goalposts undermine the confidence they need to plan properly.
“The real test of this Budget is not just how much revenue the Chancellor can raise today, but what it means for the financial security of future generations. Britain’s pension savers need stability, not an annual guessing game.”
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