New pension pot rule will be 'deeply unpopular' and penalise withdrawals
Pension savers could lose 25 per cent tax-free withdrawals under a "deeply unpopular" proposal. The new Labour Party government is preparing to unveil its fiscal agenda on October 30's Autumn Budget with rumours circulating of what will be included.
Some 25 per cent of every Briton's pension savings is tax-free with millions taking advantage of withdrawals each year. But a planned pension overhaul from the new Labour Party government and Chancellor Rachel Reeves could see this tax relief reduced or scrapped.
Richard Evans from Fidelity International said: "One option for her would be to limit the total that can be taken tax free from a pension. Currently the most that most pension savers can take as tax-free cash over a lifetime is £268,275 (the strange figure arises from its origin as a quarter of the lifetime limit on pension savings in force when that limit was abolished).
"That £268,275 figure is a very large sum of money and the Chancellor could credibly argue that no ‘ordinary working person’ would ever be in a position to take it, since it would require a pension pot of more than £1million. It’s hard to imagine her inciting widespread anger if she decided to cut the lifetime limit on tax-free pension withdrawals."
He added: "Any change to the tax-free lump sum would be deeply unpopular, although it is a perennial focus of pre-Budget speculation. One advantage for the government is that tax-free cash changes would generate tax revenue more quickly than other possible changes to the pensions regime."
A UK Government spokesperson spoke out ahead of the proposed changes and commented ahead of the October 30 Budget and speech from Chancellor Ms Reeves, set to take place in just over two weeks' time: "We do not comment on speculation around tax changes outside of fiscal events."