Individuals with long-term pension savings could be significantly impacted by potential changes in the Budget, according to Blick Rothenberg, a leading audit, tax, and business advisory firm. The firm warns that measures such as reducing pension tax relief and implementing anti-forestalling legislation could discourage saving for retirement.

Tomm Adams, Partner and Head of International Pensions and Benefits at Blick Rothenberg, highlighted the potential severity of the Chancellor’s options: “At worst, the Chancellor could scrap pension tax relief altogether, although this would be an extremely unpopular move. Other possibilities include introducing a flat rate tax relief of 30%, substantially lowering the annual relievable allowance, or reducing the 25% tax-free lump sum to 20%. Any of these changes would effectively increase the tax burden on pension savings.”

Adams particularly criticised any alteration to the tax-free lump sum, arguing that it would be unfair to individuals who have diligently saved for their retirement. “Many pensioners depend on income beyond the state pension, which is already below the European average. Reducing the tax-free lump sum feels like punishing people for being financially prudent,” he stated.

Discussing the impact of a flat rate tax relief of 30%, Adams noted that it would align with a progressive approach by targeting “the broadest shoulders.” He explained, “The average employee earning under £40,000 and paying 20% income tax would receive more tax relief under this system, but this would be subsidised by higher earners, with the excess going to the Treasury.”

Concerns were also raised about the possibility of anti-forestalling measures that could prevent individuals from adjusting their savings strategies ahead of the tax changes. Adams warned, “If the Chancellor announces pension tax relief changes on 30th October with immediate effect, it will unfairly impact individuals, employers, and pension providers who would have little time to prepare. Even a deadline of April 2025 is challenging, depending on the specifics of the changes.”

Adams also pointed out potential logistical issues, such as contributions deducted from October payroll but not transferred to pension pots until November, which could result in unexpected tax relief losses. He cautioned, “Immediate changes could lead to significant oversights, catching many individuals off guard.”

As the Budget approaches, these potential reforms highlight the precarious position of long-term savers, with pension policy at risk of becoming a focal point of government revenue-raising efforts.