UPDATE: In a bold move, Chancellor Rachel Reeves is set to target a staggering £3 billion raid on middle-class pensions in this week’s urgent Budget announcement. This controversial strategy aims to fund the removal of the two-child benefit cap, a decision that has drawn sharp criticism from business leaders and economic experts alike.
The proposed changes echo the infamous pensions raid from the last Labour government, raising alarms among private-sector workers who may face significant losses. Experts warn that this policy could inflict severe damage on pension pots, which are already under pressure compared to public-sector pensions.
The Confederation of British Industry (CBI) has labeled the plan as “a tax on doing the right thing,” emphasizing that businesses struggling to manage costs may not be able to make up the expected shortfall in contributions. Former work and pensions secretary Sir Iain Duncan Smith stated, “This will be a huge hit on savings,” highlighting that middle-income earners will be disproportionately affected.
As businesses grapple with increased financial strain, the implications of this pension raid could stunt economic growth. With private pensions lagging behind public sector schemes—where NHS workers can expect to receive back £1,130.20 for every £100 invested over 20 years, compared to just £533.80 for the average private-sector worker—concerns are mounting about the long-term viability of retirement savings.
Recent polling indicates that the public sentiment is leaning towards spending cuts rather than tax increases, with voters expressing a desire for fiscal restraint. A poll conducted by More In Common think-tank found that twice as many voters favor spending cuts over tax hikes.
As part of her strategy, Reeves has also vowed to address inflation, which has surged under Labour’s governance. The Treasury plans to freeze rail fares and provide assistance for energy bills, but the focus on pension reforms could overshadow these initiatives.
Financial markets are on alert, with former Bank of England chief economist Andy Haldane warning of a potential “vulnerable moment” for the UK economy if the Chancellor cannot demonstrate control over government spending.
Amid the mounting pressure from Left-wing MPs to abolish the two-child benefit cap—an action that could cost around £3.5 billion—Reeves is reportedly prepared to revise her initial reluctance, reflecting the urgent need to appease her party’s base.
The plans surrounding salary-sacrifice schemes, which allow workers to reduce their taxable income in exchange for increased pension contributions, are also under scrutiny. The government is considering capping these contributions at just £2,000, a move that could yield significant savings for the Treasury but also hurt the very workers the government claims to protect.
As the Chancellor prepares for the impending Budget announcement, the stakes are undeniably high. The outcome of these proposals will have immediate repercussions for millions of workers and could redefine the landscape of retirement savings in the UK.
Stay tuned for updates as this story develops and the full details of the Budget are revealed on November 29, 2025.
