Rachel Reeves could scrap popular pension policy in Budget - and you'll pay more tax

Labour could announce major pension reforms in the Autumn Budget in a move that will also hike National Insurance bills. Experts at tax consultancy RSM UK said Chancellor Rachel Reeves could be looking at several changes to pensions to increase HMRC receipts. This comes after the Chancellor confirmed in recent days she is looking at tax reforms.

Ian Bell, partner and head of pensions at RSM UK, said: "The Chancellor will no doubt have pensions firmly in her sights in the autumn Budget, and areas of particular interest may be increasing tax or National Insurance contributions for pensioners, removing or restricting the tax-free status on pensions commencement lump sums, and making changes to tax relief on pension contributions, potentially to a flat rate of say 30 percent."

He pointed to another key change the Chancellor could bring in for pensions: "She may also be considering removing the option of salary sacrifice on pension contributions to raise more National Insurance." Salary sacrifice is an arrangement where an employee accepts a reduced salary by a certain amount, with the employer paying an equivalent amount into their pension.

The amount that goes into your pension gets the benefit of whatever pension tax relief that applies to you, as well as the cash not being subject to income tax or National Insurance, as it's not part of your income. Carlton Crabbe, finance and insurance expert at financial planning firm Capital for Life, also said there could be pension reforms in the Budget.

He said: "Each Autumn Statement brings whispers of reform, but this year, the stakes are higher. With the UK facing an ageing population, rising life expectancy, and persistent fiscal pressures, pensions are an increasingly tempting target for tax policy changes.

"If the Government decides to restrict higher-rate tax relief, it could particularly impact middle- to high-income earners who rely on pensions as a core part of long-term wealth planning. Similarly, any move to limit the 25 percent tax-free lump sum would alter retirement cash flow planning for millions nearing drawdown age."

From age 55, the age when you can access your private pensions, you can withdraw up to 25 percent of your pension pot as a tax-free lump sum, up to the value of £268,275.

When asked previously about changes in the Budget, a spokesperson for HM Treasury said: "We do not comment on speculation around future changes to tax policy." The Autumn Budget will be set out before Parliament on Wednesday, November 26.