Chancellor Rachel Reeves is preparing to unveil her highly anticipated Autumn Budget on Wednesday, November 26, with significant policy announcements expected to address the £40 billion financial shortfall inherited from the previous Conservative government.
Pension Reforms Take Centre Stage
The Chancellor's budget is expected to introduce substantial changes to pension arrangements, particularly targeting salary sacrifice schemes. Under the proposed reforms, an annual limit of £2,000 would be established for these pension arrangements.
Contributions exceeding this threshold would become subject to National Insurance contributions at standard rates. This means employees would pay eight percent for earnings below £50,270 and two percent for income above that level on amounts over the £2,000 cap.
Tax-Free Lump Sum and State Pension Changes
Another area under scrutiny involves the tax-free pension lump sum. Currently, individuals aged 55 and above can access 25% of their pension tax-free, up to a maximum of £268,275.
While there were initial reports suggesting this could be reduced to £100,000, recent indications from the Treasury suggest these plans may have been abandoned, offering relief to many prospective retirees.
In more positive news for pensioners, the state pension is expected to receive a 4.8 percent increase in line with the triple lock commitment. This would see the full new state pension rise from £230.25 to £241.30 per week starting April 2026.
Similarly, the old basic state pension would increase from £176.45 to £184.90 weekly, providing much-needed support to pensioners facing ongoing cost of living pressures.
Broader Financial Context
These policy announcements come against the backdrop of the Labour government's efforts to manage the substantial financial inheritance from their predecessors. The rumoured reduction of the Cash ISA tax-free allowance from £20,000 to potentially £10,000 annually forms part of this broader strategy, though the Chancellor's focus appears firmly on pension reforms.
The Autumn Budget represents a crucial moment for the new government to establish its financial priorities and demonstrate its approach to economic management during challenging fiscal circumstances.
