Healey urged to ‘restore faith’ by ending personal allowance freeze in Budget
UK savers are demanding chancellor John Healey end the freeze on the personal allowance in his maiden Autumn Budget, as more Brits get dragged into higher tax bands.
A recent poll showed nearly 70 per cent of taxpayers want Healey to unfreeze the personal allowance, with critics arguing it has forced workers and pensioners into higher bands, according to the latest survey from Pension Bee.
Coupled with frozen thresholds, the personal allowance freeze has seen scores of pensioners become tangled in the income tax net, despite not considering themselves wealthy.
The so-called fiscal drag has caused the amount of tax paid by people in retirement to climb from £21.1bn to £29.8bn, an increase of over 40 per cent in just two years, according to the latest pension participation figures from HMRC.
The tax-free personal allowance has been frozen at £12,570 since April 2021, and former chancellor Rachel Reeves initially pledged not to extend it beyond the April 2028 expiration date.
But in the November 2025 Budget, Reeves made a u-turn, confirming the threshold would remain frozen until April 2031.
The number of higher rate taxpayers reached 6.6m in the last financial year, which has driven up the cost of tax relief on pensions when they pay into a pension, according to HMRC.
Becky O’Connor, head of pensions at Pension Bee, said: “Whatever John Healey decides on 28 October, he is starting from a position of low trust when it comes to pensions.
“A clear, early signal on the tax-free lump sum as a starting point would cost nothing and could go a long way to restoring faith.”
Pension pulled into inheritance tax
Over 40 per cent called on Healey to overhaul Reeves’ personal allowance decision immediately, but one in five admitted to not knowing what the allowance was.
This underlines how the debate surrounding pension tax has outpaced public understanding, leaving many Brits vulnerable to being hit with taxes they were unaware of.
Elsewhere, others called for the incoming changes to the inheritance tax (IHT) system to be scrapped, as the policy shake up creeps closer.
From April 2027, pensions will be included in the scope of IHT, meaning unused funds and death benefits will count towards the value of a person’s estate for tax purposes.
The overhaul of the long-standing IHT exemption for defined contribution pots, combined with frozen tax thresholds which have dragged more-middle earners into higher bands, means thousands of additional estates are set to be ensnared in the tax net.
Give us the control
The calls for reform come as the Autumn Budget creeps closer, leaving both savers and pensioners increasingly anxious over how the government will treat their pensions.
Almost 60 per cent said they were not confident the government would protect their retirement savings, while 38 per cent expect the Budget to make saving for later life even harder for ordinary workers.
These concerns have caused a greater appetite for more control and flexibility over pension savings.
Brits said they would feel more enticed to allocate capital to their savings if they were able to decide when and how they could access it, rather than being given greater employer contributions or tax relief.
O’Connor said: “Savers know what they want from this Budget. More room to save, protection from the creeping tax burden on retirement income, and certainty that the rules will not keep changing on them.
“Without certainty over the benefits pensions provide, there is a real risk they lose their appeal, and the consequences of that for individuals and for society could be significant.”