Chancellor Rachel Reeves is understood to be exploring a stealth tax raid on pensions as part of her upcoming Autumn Budget.
All UK households could face new £40,000 pension rule from HMRC
Millions of UK households could face a new £40,000 pension rule from the Labour Party government and HMRC. Chancellor Rachel Reeves is understood to be exploring a stealth tax raid on pensions as part of her upcoming Autumn Budget.
Ms Reeves has been suggested a proposal which could see the maximum tax-free pension withdrawal from its current £268,275 limit to as little as £40,000.
The Telegraph reports one proposal under consideration would set the ceiling at £100,000, while a more severe option backed previously by pensions minister Torsten Bell would establish a £40,000 threshold.
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As it stands, an individual with retirement savings of £400,000 can currently withdraw £100,000 without tax implications. And someone with £1million in their pension can access the full £268,275 maximum tax-free.
Nick Flynn, the retirement income director at Canada Life, issued a warning over the move. “Whilst seismic changes, such as abolishing this benefit altogether, seem unlikely, it will be interesting to see whether any adjustments to the overall cap are considered,” he stated.
“Tax-free cash remains an important element of the pension system, designed to encourage long-term saving, and decisions about accessing pensions are best made with care and, where appropriate, professional advice,” he added.
Gary Smith from Evelyn Partners said the rumours “would not bring in extra revenue for the government swiftly, it would be a long-term gain, so that could make this a less attractive move given how unpopular it would be”.
Lisa Picardo, chief business officer at the pension platform PensionBee, said: “Such a cut would disproportionately hit responsible savers who have diligently put money aside. Savers already face shifting tax rules, so removing or altering this benefit would only add more uncertainty and make it harder for people to plan with confidence.
“This kind of policy shift risks punishing those who have played by the rules – it sends a signal that the goalposts can be moved after decisions have been made, further eroding trust in the pensions system.”
Andrew King, a retirement planning specialist at wealth manager Evelyn Partners, said: “Let us also not forget that pension savers have been promised the ‘aspirational’ 25 per cent tax-free lump sum for many, many years, and many retirement goals would have been planned around this, such as the holiday of a lifetime, the purchase of a motorhome, new car or holiday home.
“Reducing this would seem to be the breaking of a long-standing promise which would detrimentally affect people’s retirement plans.”