Speculation over the pension reforms that may feature in the upcoming Budget has continued to grow, with industry experts urging the Chancellor, Rachel Reeves, to adopt a balanced approach to any changes.

In particular, speculation over rumoured changes to salary sacrifice has continued to grow, despite growing concern over the potential impact changes in this area could have.

Indeed, EY UK pensions consulting leader, Paul Kitson, warned that changes to salary sacrifice, if implemented, would be a real cost to business, particularly following the increase in employer national insurance (NI) introduced earlier this year. 

"This could also lead to some firms potentially decreasing the amount they contribute to schemes, making pension saving less attractive for employees," he stated.

"Further, for the many employers who share the NI savings with employees by enhancing contributions on salary sacrificed, this could also lead to lower contributions hitting employees’ pension accounts.

This was echoed by Hargreaves Lansdown head of retirement analysis, Helen Morrissey, who warned that restricting salary sacrifice on pension contributions could cause long-term damage to people’s pension prospects.

Potential changes to pension tax relief have also continued to prompt concern, as Kitson warned that whilst changes to tax relief could generate significant revenue for the Exchequer – estimated to be around £15bn – it may discourage pension saving among those in the higher income bracket. 

"Any changes to the tax relief system need to be considered against the backdrop of the message it sends to pension savers who may then lack trust in the system, for fear that it will be changed again in future," he stated. 

Morrissey agreed, emphasising that changes to tax relief could prove "hugely unpopular and could undermine confidence in the system", as well as complex and time-consuming to implement. 

Concern over the impact that a further tax allowance freeze could have also continues to grow, particularly following the news that the state pension is set to increase by 4.8 per cent under the triple lock.

Modelling by LCP partner, Steve Webb, revealed that, if the Chancellor were to extend the freeze on income tax thresholds for another two years, this would mean an extra half million state pensioners paying income tax, even when allowing for the increase in pension age from 66 to 67.  

This means at least 9.3 million pensioners paying tax, representing around three-quarters of all pensioners, compared with around 8.7 million today. 

However, if inflation or wage growth picks up in the coming years, leading to larger state pension rises, Webb found that there could "easily" be 10 million pensioners paying income tax by the end of the decade.

And the number of pensioners paying tax has already increased significantly as a result of the freeze on allowances, as Webb's modelling revealed that, in 2021/22, when the freeze started, there were around 6.7m pensioners paying tax, compared with 8.7m today.

This builds on previous research from the Institute for Fiscal Studies (IFS), which showed that, without an exemption, pensioners with low incomes will be required to begin paying tax directly to HMRC from 2027, creating an administrative burden for millions.

Given the concerns emerging ahead of the Budget, Kitson stressed that, if the government seeks to address fiscal challenges through these or other proposed pension changes, it is "vital" that the broader implications for individuals and businesses are considered. 

"A balanced approach that safeguards the interests of all stakeholders is essential to ensure that retirement planning remains viable and attractive in the long term," he stated. 

But broader concern over the impact of all of this speculation has also persisted, as a survey from Penfold highlighted growing national uncertainty in pension planning and protection.

According to the research, 73 per cent of UK savers lack confidence (ranging from not very to not at all) that the government will protect pension savers in the upcoming Budget. 

Nearly half of the respondents went on to state fears that they won’t retire comfortably, with a further 30 per cent unsure.

“Moving the goalposts and changing retirement rulesets builds anxiety, frustration and distrust in government bodies,” Penfold co-founder and CEO, Chris Eastwood, said.

“Savers want stability and confidence in their investments, which is sorely lacking ahead of these predicted outcomes. Pension policy should not be seen as a short-term fiscal measure.

"If the government proceeds with these changes, it only creates further disappointment for UK savers.”

This was echoed by Isio head of wealth, Mark Campbell, who said: “If there is one clear and obvious trend in the world of personal finances, it is that pre-Budget mania and speculation is increasing.

"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."

Campbell also emphasised that previous experience has suggested that there is a good chance that many (not possibly none)  of these will not make the cut on Budget Day.

Given this, and with "perhaps the biggest change for many years set to come into effect in April 2027 when IHT applies to defined contribution pensions", Campbell argued that it is more important than ever to have a robust and well-thought-through plan in place.

"In the meantime, the Chancellor must end the uncertainty," he stated.

"We should be giving people the confidence to make positive long-term decisions which benefit their financial health," he stated. "Endless speculation damages trust at the worst possible time – when big tax changes lie ahead.”

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