“Prudent savers now feel like prey.” So said Richard Watkins, a certified financial planner at Continuum, a national firm of financial advisers, in response to the frenzied speculation over speculation that chancellor Rachel Reeves intends to hit pensions in her second Budget, on 26 November.
Those who are old enough – and, curses, you have to be 55 or over to qualify – have been withdrawing tax-free lump sums from their pension pots in record numbers. More than £18bn was pulled out in the year to the end of March 2025, compared to £11.25bn in the previous year, according to new figures from the Financial Conduct Authority. The number of people cashing in increased to 211,000 from 163,500.
The fear that the chancellor is planning a raid is an obvious motivator. Estimates of how much she needs to find to stay within her “non-negotiable” fiscal rules have ranged from £20bn to £40bn. While that is indeed a big number, and a big problem, it is pin money when compared to the amount of money saved in private pensions – and we’re not talking about the public sector here. According to the Office for National Statistics, their combined market value was £1.2tn between March 31 and September 30, 2024. File under “tempting target”.
We’ve been here before. Gordon Brown launched what was dubbed a “smash and grab raid” on pension funds in 1997, with his abolition of their dividend tax credit. This significantly worsened their financial position and ultimately hastened the end of final salary pension schemes, which offer workers a guaranteed income upon retirement, for employees in the private sector. That there is the law of unintended consequences at work.
Back to today, where the problem goes beyond Baby Boomers and Gen X-ers taking their pensions early to keep Reeves’ hands off them. Younger people may simply give up the ghost. For most Gen Z-ers, and even many millennials, saving for pensions is not a priority, with housing costs at all-time highs, the price of essentials such as food and energy going through the roof, not to mention the high cost of servicing student debt, credit card debt, Klarna debt, and other loans.
Many don’t have room to save for a pension even if they want to. However, those that do, those lucky enough to still have disposable incomes, may start to question if the discipline and prudence required to save is worthwhile if the chancellor is going to break in with a big bag bearing the legend ‘swag’ whenever the Treasury needs cash.
Saving for a pension means accepting that you won’t be able to touch the nest egg until you’re 55 at the earliest, regardless of what life may throw at you. Americans can sometimes borrow against their 401k retirement plans if they find their homes need work or if they get hit with the very American problem of unforeseen medical bills. Britons can’t do that.
To sacrifice any flexibility demands an incentive. With pensions, it is that you save from your gross income before any tax is applied, with a tax free lump sum waiting at the other end. Put that at risk and you put at risk people’s willingness to save.
The government needs people to do that. For literally decades now, people like me have been writing about Britain’s demographic time bomb. The population is ageing, rapidly and we are not having enough kids to support the grandparents. The pensions triple lock is gobbling up an ever greater share of the national budget. So is an NHS that is mostly used by older people. And don’t even get me started on the cost of long term care.
Successive generations of politicians have (shamefully) kicked this one into the long grass rather than thinking about how to address it. But it is now with us. It is partly responsible for Britain’s slow growth, and that’s just for starters.
More saving through private pensions would reduce people’s reliance on a state that is creaking at best. Said Watkins: “If you are not saving, you will be totally at the mercy of state support which, over time, is likely to dwindle. For your hard won peace of mind, self worth and prudence, keep saving. It requires patience, discipline, persistence and a good plan that works for you. Your future self requires you to act now.”
Watkins warned of the “inherent danger in being overly influenced by the noise surrounding what Rachel Reeves will do next”. Rightly so. We should all pay attention to what he told me.
But Reeves has some responsibility here, too. Nature abhors a vacuum and one consequence of her decision to go for the latest Budget in 10 years at a time when everyone knows taxes are going up is that the vacuum will be filled by speculation. That speculation could prompt people to make bad decisions, both for their own futures but also for that of the state.
Needless to say, the chancellor has the power to nip the problem in the bud. She should do so.
