The Institute and Faculty of Actuaries has added its voice to those in the sector urging the chancellor not to change pension tax rules again in next week’s Budget, saying people need to know that their long-term goals will not be disrupted by short-term challenges. Others have warned that constant kite-flying on tax damages trust and outcomes.

Rachel Reeves will finally reveal her Budget choices on 26 November and is widely expected to try to scrape together tax increases to make up a shortfall created by various previous policy decisions and an expected growth downgrade from the Office for Budget Responsibility.  

Last year, the government opted to include pension pots in estates for inheritance tax purposes from April 2027. Most recently, press leaks suggested the chancellor is looking at capping national insurance relief on pension contributions at £2,000.  

As the sums held in pensions for people’s future security are in focus once more, Paul Sweeting, president of the Institute and Faculty of Actuaries, urged the chancellor to think ahead.  

"The most successful and effective interventions on pensions policy have always had sustainability at their heart. It is therefore important that the chancellor takes a long-term approach to any changes to the pension system in the UK and does not allow positive evolution to be derailed by budgetary considerations,” Sweeting said. “People need to know that their long-term goals will not be disrupted by short-term challenges.” 

He argued that the long-term positive impact is one of the reasons auto-enrolment has been well received as a policy, even if its effects will not be fully evident for some years.  

The government has set up a Pensions Commission to consider long-term pensions adequacy, and has launched a fresh review of the state pension age. Sweeting said together, these provide an opportunity to make changes to support future generations of retirees, but stressed that “the foundation for long-term sustainability needs to ensure fairness between generations”.  

This hints at previous governments' policy to largely balance state pension spending by increasing the state pension age for those not yet retired, while introducing and then keeping generous triple lock increases for existing pensioners. The state pension age set to rise to 67 next year and to 68 from 2044. A steep increase in poverty rates among people just before state pension age has emerged since SPA was put up to 66 from 2018, with the Work and Pensions Committee launching an inquiry last week.
   

   

The IFoA is not the only organisation hoping for no change, amid a flurry of kite-flying that some warn are leading to knee-jerk reactions among savers as changes to income tax, pension tax relief, salary sacrifice, property tax, wealth tax, capital gains tax and inheritance tax have been mooted.  

“More than ever, the Treasury has leaked policies and tested the water with ideas that we can be almost certain will never come to pass. As we’ve seen with previous Budgets, the effects of this are very damaging. People make short-term decisions based on speculation and rumours,” said head of wealth at consultancy Isio, Mark Campbell.  

 

Tom Selby, director of public policy at investment platform AJ Bell, echoed this view: “This constant uncertainty has real world consequences, with the industry reporting significant spikes in contributions and tax-free cash withdrawals ahead of the last two Budgets.” 

 

AJ Bell analysis suggests that someone who took out their tax-free cash and put the money in a savings account would be £63,000 worse off in 10 years’ time. 

 

The firm has been calling for a ‘pensions tax lock’ to counter this trend, “instead of stumbling from Budget-to-Budget with constant speculation about pensions tax-free cash and tax relief on contributions”, said Selby. 

 

Sky News even asked whether the government’s kite-flying on certain tax increases – specifically an income tax rise that would be in breach of its manifesto – before later U-turning might not have been a deliberate act designed to bring down gilt yields in the time window the OBR uses for its economic forecast.