Introduce a Pension Tax Lock to help protect retirement savings and incentives

The Chancellor should introduce a Pension Tax Lock: a commitment not to reduce the amount people can withdraw from their pension tax-free or the amount of tax relief given on pension contributions. We believe this would help ensure retirement savings are protected and people can save with confidence

We believe this simple commitment could put an end to the speculation seen ahead of every Budget – speculation which we think erodes confidence in long-term saving and can all-too-often lead to people making poor, sometimes irreversible, financial decisions.

We think this would come at zero cost to the Exchequer and would allow people to save for retirement with more confidence. We feel it could support the government’s twin aims of delivering pensions adequacy and boosting economic growth.

The Government wishes to encourage pension saving, to help ensure that people have an income, or funds on which they can draw on, throughout retirement. The Government is committed to supporting savers at all stages of life. That is why, for the majority of savers, pension contributions made from income during working life are tax-free. This is known as 'pensions tax relief'. This relief is available at an individual's marginal rate. For example, contributions from a basic rate (20 per cent) taxpayer who contributes to a registered pension scheme in 2025/26 receives tax relief at 20 per cent. This makes pensions tax relief one of the most expensive reliefs in the personal tax system, costing £78 billion in 2023/24.

Investment growth of assets in a pension scheme is also not subject to tax. From age 55 (or when scheme rules allow a pension to be taken), up to 25 per cent of the pension can be taken tax-free (capped for most at a maximum of £268,275), depending on scheme rules. Pension income received (for example as a regular annuity payment or as income drawn down from a pension) is subject to income tax at an individual's marginal rate, to reflect the fact that pensions in payment are a form of deferred income and have not been previously taxed.

The petition proposes a ‘Pension Tax Lock: a commitment not to reduce the amount people can withdraw from their pension tax-free or the amount of tax relief given on pension contributions’.

At Autumn Budget 2025 the Government announced that it is changing how salary sacrifice for pension contributions works – from April 2029, the amount that is exempt from National Insurance contributions (NICs) will be capped at £2,000 a year for employee contributions made via salary sacrifice. More information on this change is available here: https://www.gov.uk/government/publications/changes-to-salary-sacrifice-for-pensions-from-april-2029